Some 16% of Americans have a poor credit score, with 17% having just a โfairโ credit score. This has profound implications for their daily lives, as traditional lenders will often refuse to grant people with a poor credit score access to credit. In aย country in which just 39% of people say they can pay for a $1000 emergency expense from their savings, access to credit is vital. With the doors to traditional credit shut, title loans have become a vital source of credit for people who have a poor credit score and find themselves in financial difficulties.ย
What Are The Benefits Of Car Title Loans?
Car Title loans are a solution to the problem of inaccessibility of credit for people with low credit scores. Title loan lenders do not take credit histories into consideration when they review an application. Instead, what they do consider is the value and condition of an asset, typically a vehicle, that is owned by the person seeking a loan. In the agreement signed with the lender, the borrower agrees to have a lien placed on their vehicle. A lien is a form of interest granted over an asset so that a debt is repaid. The borrower grants the lien, and often, will hand over the hard copy of their vehicle title for the duration of the loan. So, the borrower has to fulfill the payment terms of the loan within a specified period. If the borrower does not do so, the lender will repossess their vehicle.
Given the high risk nature of the borrower, the lender charges an interest rate that is higher than traditional credit markets typically charge. These rates are higher than most bank loans, but the APR can sometimes be lower than a payday advance or online personal loan. This is because of the high probability that the borrower may not repay the loan. The direct lender prices the loan to reflect their fear of loss if you borrow the money and refuse to pay back the amount owed.
What Are The Cons Of A Title Loan
Typically, a title loan is offered based on the value in your vehicle. This amount can be anywhere between 35% and 75% of your vehicleโs resale value. The lender will determine the amount by checking the resale value of your car, and taking into account its condition and mileage. This may seem like a benefit when looking at the high loan amount, but this also means you will pay back a huge amount of cash in interest over the life of the loan.
So letโs say you want access to vehicle title loans in LA. What do you do? You can apply for one online, or visit a title loan lender in store. The negative aspects of applying with a local lender mean that it may take more time to get approved as the process is often more streamlined online. Any licensed lender in Los Angeles will ask you for proof of identification, such as a government-issued ID, or driverโs license. You will also need to provide proof of residency, your car registration, a lien-free vehicle title in your name, references, and proof of auto insurance. In California, you can expect a maximum interest rate of 36% on your title loan. Interest rates vary, however, from state to state.
Assess If A Car Title Loan Is Right For You
It is important to read through your agreement carefully and determine if this lending offer is your best option moving forward. You will have to pay interest on the loan by specific dates, and then, the overall balance by the final date, perhaps as a lump sum. If, however, you cannot repay your loan, the lender will be able to repossess your vehicle, and sell it to get what you owe them. Lenders are often reluctant to do so, because the repossession process takes so long, and the costs of repossessing the car and reselling it eat into the balance owed. While all this is going on they are not receiving any payments from the borrower. Often, any amount recovered from the sale and in excess of the outstanding balance, is given to the defaulting borrower. Take your time while evaluating multiple quotes and lenders to ensure you get the best APR and payment terms with a title loan company near you!
