Car title loans are a good choice if you need quick cash to pay pending bills, manage debts, or have a financial emergency. However, they can only be accessed by those who own vehicles outright or have owe a little amount. Known as a fast auto loan, below are important things to know before applying for these loans. 

You need to own a car or have equity to access car title loans

As the name suggests, car title loans are short-period secured loans that use your vehicle as a security. These loans are given to most vehicle types, including motorcycles and trucks. Typically, these loans range between $100 and $5500, an amount that equals 25% to 50% of the vehicle’s value. Payment terms of these loans are short, ranging from 15 to 30 days.

To access title loans, you should have outright ownership of the vehicle (100% car ownership) or some equity in the vehicle. Apart from providing the car title as proof of ownership, lenders also want to inspect the vehicle, proof of insurance, and a photo ID. If you are approved for the loan, the lender retains your car title until the entire amount is paid back in full.

Car title loans have high-interest rates

Most people complain that car title loans charge high-interest rates and fees compared to other loan types. While this is true, these fees can be justified because they are short-term loans that provide quick cash for a pressing financial need. As a result, don’t be shocked if you find lenders charging up to 25% of the principal amount.

For instance, if you take a car title loan of $2000 at 25% per month, you should pay $2250 and some additional fees by the end of the payment period. While this is higher than any other type of credit, they provide financial reprieve when you most need it. Make sure that your lender informs you of the annual percentage rate and total cost of the loan before taking the loan.

You can lose your car if you don’t pay the loan

If you can’t pay the principal amount and the fees in time, the lender may roll over the loan with additional interest and fees. While this allows you more time to pay back the loan, remember that there are additional fees on the initial amount.

For instance, if you initially took a loan of $1000 with a $250 fee and were unable to pay at the end of the 30 days, you should pay the fee, and the lender rolls over the principal amount as a new loan with another fee. If you pay the new loan off, you will have paid a $500 fee.

However, if you keep rolling over the loan, the fees may accumulate, making it impossible to repay the lender. If such a situation occurs, the lender can repossess your vehicle. This may also affect your credit score.

Endnote

Car title loans are an excellent option for solving immediate financial needs. However, as you search for car title loans near me, you should understand the aforementioned demanding conditions to avoid surprises.