Nobody wants to be in a position where they have an emergency expense on the horizon that requires a major cash payment which they do not have. However, considering the fact that the average American only saved $5,011 in 2022, it’s clear that meeting the financial obligation of an emergency expense simply may not be possible in the modern day. 

Due to this, many people often consider taking out a loan in order to meet their financial obligations. There are a variety of different loan options to consider when thinking about this option, but one of the most popular choices is a title loan. This type of loan has a number of important nuances that must be covered, however, in order to ensure that a borrower of a title loan does not fall further into debt. 

What is a Title Loan?

Understanding the various nuances of a title loan starts with understanding what exactly a title loan actually is. This loan is a short-term, high-interest loan that typically has a tenor of 30-days and an APR equivalent of 300% after all interest and fees have been added in. It provides quick access to funds for borrowers, with the amount able to be borrowed being determined based on the collateral provided.

The collateral on a title loan is in the form of the vehicle title of the borrower. Therefore, the borrower needs to completely own their vehicle in order to put it up as collateral. The amount a borrower can take out with a title loan is typically 50-75% of the value of their vehicle’s title at the time of application.  A borrower who takes out a title loan will receive their lump sum of cash at once in return for exchaning the title to their vehicle with the Best Moneylender Singapore. 

How Does a Title Loan Work?

When considering car title loans in Michigan, California, New York, or any other state, it’s important to build an understanding of how they work. As with other types of loans, a title loan will have a principal amount that is the actual amount being taken out with the loan by the borrower. The loan will also have a set repayment period which is typically around 30 to 60 days with a title loan, though the former is more common. 

A borrower who takes out a title loan will receive their lump sum of cash at once in return for exchanging the title to their vehicle with the lender. They will then have until the tenor is up to repay the loan including any interest and fees that may be associated with the loan. Given that title loans are notorious for high interest, with an equivalent of 300% APR as mentioned, taking out a $100 title loan may mean that a person needs to repay around $400 by the end of the month.

Benefits to a Title Loan

While title loans may not sound ideal at first glance given the high interest rate often associated with them, there are a number of benefits to title loans that make them enticing:

  • Quick access to cash with same-day funding often being available
  • There are few, if any, credit requirements associated with applying for a title loan
  • The processing time for title loans are some of the lowest in the industry

Drawbacks to a Title Loan

Despite the above benefits, there are a number of drawbacks to keep in mind when taking out a title loan. The most notable of these include:

  • The risk that not repaying results in the potential repossession of a person’s vehicle
  • The interest rate associated with a title loan makes repayment extremely difficult
  • The repayment period on a title loan is typically just around a month
  • The borrowing amount for a title loan is typically not that high 

Tips for Ensuring a Title Loan is Affordable

Considering all of the above, specifically the associated cost with borrowing a title loan, learning how to reduce the borrowing cost is important. First and foremost, to ensure a title loan doesn’t result in a cycle of debt, a person should be absolutely sure that they can repay the entire title loan, including all interest, in the given period of time. This tends to make title loans best for those who have a payday on the horizon but have a bill due immediately which they can’t meet out-of-pocket. 

Building off of the prior point, an easy way to make a title loan more affordable is to consider options from different lenders as opposed to a single one. In many situations, if you bring an offered interest rate or APR to another lender, they may be willing to match or offer more favorable terms in order to secure your business. 

Alternatives to Title Loans to Consider

For those who may not believe title loans are right for them after considering all of the above, there are a number of beneficial alternatives to keep in mind:

  1. Personal Loans: As opposed to title loans, personal loans are unsecured loans that have repayment periods of around two to seven years with interest rates in the range of 6-36% depending on credit worthiness.
  2. Credit Cards: For smaller expenses, simply putting the expense on a credit card may provide a fairer interest rate. Those who don’t already have a card open can consider making use of a welcome bonus to meet the expense. 
  3. Friends and Family: Considering asking your loved ones and those close to you if they would be willing to assist with your financial situations. They likely will not charge you interest and will be far more understanding in your timeline to repay.

Find the right financing today

Title loans will not be the right choice for everybody based on the expenses they are facing and the timetable they need in order to pay off the debt. In truth, any borrowing amount that cannot be repaid within thirty days, or the timeframe of the title loan, shouldn’t be taken out with this loan type. Instead, consider an alternative borrowing option that doesn’t come with as high an interest rate or as much risk via collateral. For those who can afford it, however, a title loan can provide the financial assistance a person may desperately need.

This article was provided by Susan MelonyÂ