November 2, 2018, 7:00 am

Everything You Need to Know About Car Title Loans

by: The Financial Blogger    Category: Personal Finance
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Getting rid of your debts and rebalancing your finances takes some work. While some would advise against taking out a loan to pay a different loan, it can actually be a smart solution to your financial woes. For example, did you know that you can actually take out a loan using your car?

 

That’s correct, you can take out a secured loan and use your car title as collateral. Read on to find more on car title loans and how they work.

 

What is a title?

A title loan is a loan that involves a title. Titles are essentially legally binding pieces of paper that prove that you own said item. A title can belong to a car, house, or any other item. When taking out a loan, these documents can then be presented to a bank or a lending company and have your item act as collateral.

 

Why use a car title?

Titles act as good collateral because there is a certain level of investment and attachment involved on your part as the lendee. What this means is that the bank or the lending company will feel more confident that you will repay them the money they loaned to you (plus interest) since you now have an incentive — getting back your title, and your property in effect.

 

Aren’t car title loans a bad option?

Title loans, or more specifically car title loans, get a bad reputation mainly because of the number of shady dealers out there. What most people need to be on the lookout for are reputable institutions that offer loans with reasonable interest rates.

 

Sometimes car title loans can even work in your favor. Some banks and lending companies can actually help you pay off your car and still make out with a bit of money when you take out a loan with them.

 

How does it work?

Unlike other loans such as personal loans, car title loans are very easy to do. The first step to a car title loan is to assess your credit rating and your car. Once the bank or the lending company has assessed your ability to pay back a loan, they will then provide you an amount that you can borrow; this amount is also based on the value of your car. After that, all that’s left to do is pay off the loan and any interest you’ve accumulated. It’s that easy!

 

Will they take my car when I take out a loan?

One of the common misconceptions about car title loans is that the bank or the lending company will keep your car while waiting for full repayment of the loan. This is incorrect; you can still use your car. Most companies will simply attach a GPS device to help keep track of where the vehicle is. Once the loan has been paid in full, they will then remove the device from your vehicle. The only time that they will take your car is if they need to repossess it so they can liquidate it and use it to pay off your loan.

 

Sometimes you have to go to certain extremes to get out of a sticky situation. But just because you have to go to extremes does not mean that you cannot do it in a smart and achievable way. Now that you have an answer to your question of “How do car title loans work?”, you can use that newfound knowledge to help you get out of a tight spot without having to use your house as collateral.

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