If you need money, you may consider getting a loan and using your car as collateral. While this may seem like a great way to get some fast money, there are some disadvantages to getting a title loan. Before you even think about doing this, you should read these pros and cons to getting a better grasp on auto title loans.
Pros of Title Loans
- Fast Money: The biggest benefit of getting an auto title loan is the fact that you can get money very quickly. In most circumstances, you simply complete an application and get your money much faster when compared to other types of loans. Usually, the loan is much less than the value of the car, which assists the company if the borrower cannot afford to pay off the loan.
- Fewer Credit Checks: The reason many people resort to auto title loans is that it’s much easier to get a loan. Most lenders check the borrower's credit to determine if they’re eligible for a loan through the company. Many auto title lenders don’t check your credit, and bad credit is accepted.
- Keep the Vehicle: Like a home equity loan, you get to continue to use your property while it's being used as collateral for a loan. When you use your car as a guarantee toward your loan, you get to keep the vehicle as long as you make your payments.
Cons of Title Loans
- High Interest Rates: Because bad credit is accepted, the interest rate for car title loans is outrageously high. This situation can spell bad news for people as they pay off their loan. It isn’t odd for auto title loan to be triple digits and sometimes as high as 300%. Even on a small loan of $400 at 300% interest, you’re looking at paying a thousand or more in interest.
- Repossession Possible: If you cannot pay for your loan, which may be likely as you see the interest compound, you can lose your vehicle. The reason you put your car up for collateral is so that the lender can recuperate some money if you default. Unfortunately, this means your car can be repossessed.
- Excessive Fees: The most important thing to keep your eye on are excessive fees that can come with a loan. These hidden fees are usually in the fine print of the contract you sign. These costs can include repossession fees if you cannot pay, credit insurance, and so much more. Always check the fine print if you’re considering an auto title loan.