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What Are Title Loans and How Do They Work – 2024 Guide

There have always been and always will be times when people need cash quickly for some immediate purpose. Countries around the world differ in the conditions under which their banks accept to give credit to the clients. We know how hard it can be to keep your job in times when everything is changing in a blink of an eye. Being in a situation when you have a job and don’t need to worry about losing it might make you a rare flower in some areas of the world. It might be that you’re going through tough times when your expenses require some prompt repayment and the bank just won’t give you the loan you need. Have you ever considered your car to be your best friend in even more ways than you already know of? If not, it’s time to learn some essentials about title loans.

What is that and what do I need to apply for it?

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The title loan is a great alternative to a regular one and includes using your car as collateral for the funds you’re about to borrow. Since the money is usually needed fast,  it gets approved more quickly than the one you would get from the bank and the borrowings are short-term ones. The way it works is similar for all the lenders, yet there are some differences among them. They usually include the maximum amount of it you can get in comparison with how much your car is worth.

What happens here is – you get your car back after you pay the debt off. We all know that there are various ways to buy a car. While some people have enough funds to pay for it with cash, others pay the car off in installments. This also divides the lenders into two groups: those who accept the collateral cars only after fully paid off, and those who accept them while still not fully paid off. The vehicle itself can be used from your end even after the borrowed money is handed to you.

If you are about to receive the cash inflow soon and want to pay the debt to the lender and regain possession of your four-wheel buddy soon, you can do it all at once. In case you prefer the steady monthly installments, you can choose that option, too. The affinity in this case can determine a great deal of the company you’re about to choose.

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There are some basic documents or other little things necessary to apply for the credit. The requirement options might also direct your way toward settling with the option that suits best:

  • Photo-included identification document – this refers to either a government-issued ID, driver’s license, or passport
  • Personal information – basic details such as name and last name, date of birth, social security number and contact information. Along with this, you might need to input your current proof of income for the past month and proof of residency (in some cases).
  • Car-related information – details such as type of vehicle, model, year of production, license plate number. Usually, it’s also necessary to present the car title that proves that the one to receive the money is the owner of the car, meaning the car is free of liens.
  • Insurance-related documentation – depending on the state, the area, the institution itself, it’s often required from you to present the proof of insurance of a car for the loans that go over the particular amount. It can be $5,000, $3,000 or so.

Advantages and disadvantages of title loans

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Whenever you’re about to leap into the unknown (more or less), you naturally wish to assess the pros and cons of it. This type of fast money comes with these, too, and it’s useful knowing what they are before you go ahead and lend some cash.

Benefits for the borrowers:

  1. Speed – the money is ready pretty fast and it usually takes a day or two, sometimes even less than a day. The car you’re offering as collateral needs to be worth at least the money you are about to lend, so the ones in charge need to validate that before they accept it.
  2. Availability – the main necessity is to have a car and you’re halfway to getting the funds. There’s no thorough check of your financial background or capacity since the bank isn’t involved. Even if it’s not so good and the bank wouldn’t have approved it, the approval rates with the car title loans are high.
  3. Car usage – you can use your car normally during the period of being indebted and you don’t need to worry about getting to work since the car is still with you as always.
  4. Low-interest rate – the collateral that you give in the form of your car makes you already qualified for a pretty affordable interest rate, such as those of 150% annually like at

Disadvantages that might make it harder:

  1. Loan period – this type of credit is usually for a very short period and depending on the institution, your interest rates might increase if the period extends, which makes it harder and harder to repay.
  2. Risk of loss – the risk is always there, the sole action of giving your asset as an impawn means you are at risk of losing it if you turn out unable to settle the debt.
  3. The necessity of car ownership – many people don’t own their cars or don’t own them yet, and in case the lender makes it necessary that you do, which is the most common situation, this option might be inadequate for those not fitting this category.

Security matter and loan alternative

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The one who lends the money wants to make sure they are secure from loss. Those who borrow money want to get it fast and are usually willing to do what it takes to be given the cash quickly. If there’s nothing to offer as collateral, there’s still an option to get the money, and you guessed it – this comes with a higher price. The credits where there’s no collateral offered are the so-called signature loans.

The price is higher as the risk is also significantly higher for the company that borrows it, and the requirements are different than with the title loan. Here, the option of a credit check might be a usual way to go, yet the differences between them and the bank are significant. The clause that you need to be an employee at the same company for two straight years might come up here, yet in case you don’t own the car, this might work.

This type of credit injection should be used in doses and when needed. You might need a speedy way to pay the bills or maybe have had an incident, an accident, or any other emergency and you aren’t in the position of waiting for weeks to get the credit approved. The spotlight is taken by the title loan instead. The most important is – you need to spread your wings as far as they can get, and not jump into debts you aren’t able to pay off. Make sure to review all additional fees, such as service or processing ones, documentation fees, or similar small expenses that can add up to a significant amount upon application. Yet, it’s great to know that someone has your back when you need it most and this option can turn up to be a good one if used wisely!

About Stefania Trtica