Car Title Loan Basics: Benefits and Drawbacks of Car Title Loans

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Automotive Editor

Armaan Almeida is the Editor-in-Chief of the New Car Pricing Insider blog and publishes daily incentives on new cars in addition to newsworthy articles pertaining to the auto industry.

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, Automotive Editor - October 31, 2013

If you're prepared to repay them quickly, car title loans are a low-interest way to get cash on short notice; but understanding the risk is essential.

Car title loans are becoming popular ways to generate fast cash. They are being used more and more since there are some real benefits to them. However, with any loan there are some risks. Here are some advantages and disadvantages of car title loans.

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Advantages

The biggest benefit to getting a car title loan is that it enables the borrower to get the money they need extremely quickly. Car title loans are usually processed within a day or two. This is because it is a simple process, that really only involves the lender looking at your car to make sure it is worth at least the amount you need to borrow.

Anyone with a car can get a car title loan. This is because there is no credit check or background checks involved. The lender is giving you a secured loan, which means that the loan is based on a piece of collateral that you are putting up. An unsecured loan is when there is nothing involved, but they are giving you money based on the assumption you can pay it back plus interest. There is virtually no risk for the lender, so they have high approval rates with car title loans. Car title loans are perfect if you have bad credit. A bank likely won't give you the ten grand you need for your debt or bills, but if you have a car, the title loan will get you what you need.

Another added benefit is that while you have the loan out, you get to keep the car and still drive it. You will give your title and a pair of keys to the lender, but you are still able to drive. So there is no change in your life and you get your money.

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Disadvantages

Car title loans are for very short periods of time, usually a month at the most. At first the interest rate is low, but every month you need extended, the interest rates rise to high levels. When you are borrowing a high amount, it may be tough to pay it back in the short period of time. This could mean you are going to be paying much more than expected.

As with any secured loan, the risk of losing the asset you put up as collateral is there. If you default on the loan, the lender has the right to take control of your car. They will then sell it to make their money. But if the sale is less than what you owe, you may be on the hook for the difference. And to make things worse, if they sell it and make more than your debt, they keep that as well.

The attractiveness of the quick cash can make you make a hasty decision. There are real risks involved for the borrower, and you could lose your car. Make sure you know the risks involved before putting your means of transportation up as collateral.

Overall, car title loans are great ways to get fast money. There are risks involved though as you can lose your car. As long as you know you can pay them back, they are a good way to get money since there are no credit checks involved.

Use Car Title Loans with Caution

Car title loans are being used by predatory lenders to take advantage of unsuspecting consumers. If you are considering becoming a recipient of one of the many car title loans being issued, you should seriously re-evaluate your decision. There are a substantial number of people who have defaulted on their car title loans and lost their vehicles because of the unreasonable borrowing terms.

A car title loan uses a paid-off automobile as collateral. Typically, a car title loan payment is due within a month, carries a triple-digit annual interest rate, and often is for an amount that is far less than the value of the vehicle. Credit advocates argue that car title loan lenders unfairly target lower-income individuals who can't afford the steep terms. National legislation to protect consumers against these lenders seems unlikely. Some states do have car title loan laws in protect consumers.

If you are in need of emergency cash, there are much smarter options to a car title loan. These options include small consumer loans, cash advances on credit cards, and advances from employers.

CarsDirect Finance Services: An Alternative to Car Title Loans
If you're seeking car title loans to pay for a car, you may consider getting a loan through CarsDirect. We help more credit-challenged consumers than other website in the country. We work with a network of dealers who specialize in this area of financing. The dealer has access to a number of financial institutions and will shop around to find you the best deal. Simply fill out a quick and easy application, and you'll be on your way to getting your new car and avoiding having to deal with car title loans. The service is free and absolutely no obligation is required.

Car Title Loan Companies to Use and Avoid

The best car title loan companies are those that offer quick cash, low rates and most importantly a high percentage approval rate. Car title loans are normally for those who not only need money fast, but also those with poor credit. Since there are no credit checks, anyone can get an auto title loan, as long as they have a car. There are a few companies who are the best with these types of loans that you should highly consider.

  • USAutotitleloan.com is one of the best in the industry. They offer cash loans from $100 to $5500 dollars. They are prominently located in Nevada and the Southwest, but they also have an online application. They boast of being able to give people the money they need within 15 minutes, because there are no credit checks involved.
  • Carbuckscorp.com is another online auto title lender out there with high success rates. They offer anywhere between $500 and $50,000. They also have locations up and down the East Coast from Boston to Atlanta. You can fill out the online application and then a representative will contact you. The deal is quick and easy.
  • Autopawn.com is the last of the best three title loan companies out there. They offer quick decisions and say you can be approved within 30 seconds of hitting the submit button. They have been in business for 75 years, but have been dealing online for 15 years now. They were the first nationwide car title lender, so they have the experience you want in a company. With them, you can borrow up to 50% of the wholesale value of your vehicle, regardless of your credit score.

From extensive research, the worst title loan company to deal with appears to be Wilshire Consumer Credit, working on behalf of EZ loan Lookup. Multiple reviewers mentioned that research and documentation took more than five days, paperwork was lost and the customer was contacted multiple times per day by more than one person. Different requests for duplicate documentation accompanied each customer contact.

Title loans on your car's title can be a blessing or a curse, depending on what company you deal with. Make sure that before you sign any contracts, you thoroughly research the companies you contact. Demand a single point of contact with your title loan company.

Getting a Car Title Loan with Bad Credit or No Credit

Car title loans are much different than the typical loans you may have received in the past. These loans are secured, meaning they are backed by some sort of collateral. In this case, that collateral is your car, and it is all you really need in order to get this type of loan. Your credit score has no effect on an auto title loan because it is never checked during the process. There is no need to, because if you default on this loan, the lender can do one of two things. They will either raise your interest rates in order to get even more money, or they will actually repossess your car.

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The second item is the biggest risk in a payday loan. These loans are typically short term (a month or two) and because of that, you need to make sure that you can pay off a substantial loan in such a short amount of time. You will also have to pay a high interest rate, typically about 20%, which is not an APR figure, but a monthly figure. The interest rates are very high, and will add up if you do not pay on time. You should make sure you will have the available finances in the short term to cover this type of loan, so set up a budget schedule of some sort. These loans can get you fast money, but be aware that if you slip up just a tiny bit, it can result in the loss of your car.

Getting the Best Rate

Different kinds of "auto loan no credit" agreements are notorious for boosting up interest rates and leaving borrowers awash in an ocean of debt. Here are some prime tips for holding your own when you go to one of these companies to finance a vehicle.

  • Avoid shifty car title loan companies. Some of the worst offenders in usurious auto loan practices focus a lot on language around "approval," hoping that drivers with bad credit will be so grateful for the opportunity to borrow that they will agree to pay an arm and a leg for that privilege. Stay away from these shops and deal with more reasonable lenders.
  • Get detailed quotes. Enter as much information as possible and find online car insurance venues that will get you a detailed quote and not just a vague promise of approval. You'll want to keep these on hand as you investigate further.
  • Use all of your resources. This means that you use both physical locations as well as online sites that give out title loans. The more sites that you are willing to try, the better the rate you are likely to get. This enables price comparisons. Title loan prices can vary as well as the people you are taking the loan out from. It is always best to do research to make sure you are comfortable dealing with the people you plan on dealing with.
  • Pay special attention to interest rates. Of course you must pay the principal back. Title loans are short loans so the interest is slightly high, usually around 15% to 20%. The best tip here is that you must pay back your loan as soon as you can. The interest rates skyrocket as you need extensions, so the quicker you pay it off the better.
  • Never go for a "low monthly payment". Lots of the worst car title lenders will try to trick you by offering a low monthly payment without revealing the real terms of their loan. Auto pawn loans or cash title loans can include interest rates that eventually reach well over 100 percent, virtually guaranteeing that you'll be paying off your loan many times over by the time the company finally "lets you go." Don't fall for this trick: insist on a clear accounting of interest rates, not just for the initial loan, but for subsequent rollover loans.
  • Point out any asset collateral possibilities. In a car title loan, you are already using your existing asset, a vehicle that you own, as collateral in the loan deal. However, research into car title loans has shown that these lenders are unlikely to be impressed. Instead, they may try to hit you with extremely high interest rates, saying your loan is still "unsecured." There are a number of ways you can deal with this, including getting involved in a home equity loan or HELOC (home equity line of credit.) Be forewarned, though, that any collateral you use to lower your interest rates is vulnerable to seizure in cases of non-repayment.
  • Use a cosigner. When your credit makes it hard to get access to the best auto title loan options out there, a cosigner can help. The cosigner is another consumer who adds their name to your debt. If you go this route, make sure your cosigner understands their responsibilities and keep everything clearly defined in the paperwork.
  • Follow up on the phone. When it comes to securing financial deals like loan agreements or insurance policies, there's only so much you can do online. Direct negotiation with agents is critically important, so pick up the phone and have a further conversation with a lender representative.
  • Talk alternatives. When cash title lenders complain that you don't have enough assets, talk to them about the alternatives available to you, even in a bad credit situation. When these companies know that you have a cosigner available, or additional assets to put up as collateral, they may start singing a different tune. If they hold fast to high interest rates, walk away.

Getting a car loan with bad credit involves some knowledge of the industry, and more than a little toughness. However, by shopping around and using the resources at your disposal, you may be able to avoid getting taken advantage of with high interest loans.

How to Get a Car Title Loan Online

Different sites have different applications. However, the overall process and information wanted is related. Your personal information needs to be inputted. Your vehicle information like the make, model, color, VIN, mileage and your insurance information is needed. The insurance information is extra important because with an auto title loan, the lender may require you to purchase or add more insurance to your vehicle because they may feel you do not have enough. That is a perfectly reasonable request since they have control of the title while the loan is in process.

Submitting the form must be done. Then the title must be provided. The title of your car must be clear (not salvage). Also, there must be no liens on your car. Your car must be paid off in order to take out an auto title loan. Once this is done, all you have to do is wait. Depending if the website also has a physical location, you will get an email or a call with how to proceed next. The deal may be done all online, or you may have to go in to their office to drop off the title and keys.

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The process can be done in under an hour. This is because there are no credit checks involved. Since it is a secured loan and your car is collateral, there is really no risk for the lender. Worst case scenario they sell your car to recoup the money, Some lenders may prefer this since chances are the loan is at most around 50% of your car's true value. Any money in the sale that they get on top of your debt owed is also theirs to keep. You can request anywhere from $100 to $5000 or more dollars in the matter of minutes. Online sites boast of high percentage approval rates. Be sure that you know the risks involved since they are real. You can lose your car if you don't pay it back within the terms, which is usually no longer than a month.

Pitfalls to Avoid
Online title loans can be hard to successfully navigate, since the nature of Internet insurance quoting lends itself to a kind of "hidden information" problem for the borrower. Here are some potential problems with online car title loans and how to best avoid them.

  • The personal data trap. This kind of problem is not exclusive to car title loans. Any kind of online insurance quote can lead to an applicant filling in a whole lot of personal information in return for a vague, error-ridden or even non-existent quotes. What often happens is that the company receiving all of this valuable personal data, including name and address, or some more involved stuff like income and credit history, can successfully use this for marketing or pass it onto a third party. Some consumer advocates think that car title loan sites are more likely to do this than some other more established lenders.
  • Unclear evaluation for vehicles. Another issue with car title loans regards the value of the vehicle in question. In a car title loan, a vehicle title is used as collateral. However, many of the online car title loan sites fail to specify what percentage of value the borrower is able to capitalize on. As a result, some of these sites can be misleading. If you don't see a specific value portion mentioned on the site, try to reach the company directly and ask about how much value they will assign to your title if you put it up as collateral.
  • No fine print on the site. Car title loans are notorious for using fine print in a deceptive way. One of the main dangers of these types of loans is called a "rollover." In a rollover situation, the remaining debt gets compounded and rolled into a new loan, where much higher interest rates may apply. Consumers using these types of loans often get caught in a debt spiral, where ridiculously high interest rates ensure that the debt cannot be paid off with a reasonable income or revenue stream relative to the credit that was issued in the first place. With online car title loans, it can be difficult to track down these details among the glitzy images of cash and promises of future ownership that take up most of the web page space.
  • Lack of customer service. Too many companies operating these online car title loan sites don't have enough of a vested interest in providing good telephone or personal customer service to clients. Sadly, some of them are simply hoping for careless and casual borrowers who will sign onto a vague financing situation without further research. Don't be one of these individuals, but instead stay vigilant about holding these types of lenders to reasonable vehicle financing agreements, and if the site is not useful to you, don't hesitate to go elsewhere.

Can I Settle a Car Title Loan Lien?

If you have a car title loan you cannot pay off, you may be wondering whether or not you can pay off your car title loan lender.

What is a Lien?
The word lien means the right to take away the property of someone who breaks some kind of contract. In this case, lien lender means the organization that lent you the money for your car title loan has the right to take your property in the event you cannot pay off the loan with real money. If your title loan is lien lender, it will say this in the contract, and you will have the opportunity to pay off the debt with property rather than money.

When a Car Title Loan Lien Can Be Settled
Generally, financing institutions are unlikely to accept lien lender settlements from people without contracts that include a lien lender agreement, so the first thing you should do is check your contract. If you find that it does include this type of agreement, you will have to pay off the loan lien lender according to the terms of that agreement. You will then have to assess the value of all the property you plan to offer as compensation, and if it is worth enough, you can hand the property over and be done with it. If not, you can try to work out some deal with the company. But chances are slim you will come to a favorable agreement. If you do manage to work something out, you will probably have to give more value in property than the value of the loan.

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, Automotive Editor

Armaan Almeida is the Editor-in-Chief of the New Car Pricing Insider blog and publishes daily incentives on new cars in addition to newsworthy articles pertaining to the auto industry.

Follow On: Google+ | Website

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