Are you looking for loans using your car as collateral because you need quick cash? Title loans are one option you can use to satisfy your financial needs. At Swift Title Loans, you can receive funds as soon as the same day or the next business day without worrying about your credit scores or if you don’t have a traditional job.
Knowing these ten things is important before borrowing a car title loan to ensure it’s the right fit for you.
10 Things You Must Know About Car Collateral Loans
1. You Must Own the Vehicle Outright
Lenders who offer car title loans require that you own your car without any liens. This means if you borrowed money to buy the car, you must have paid the loan off in full. The only exception is if you have a small balance left to include in your car title loan while still having money left to satisfy your financial emergency.
2. You Can Keep and Drive the Vehicle If You Make Your Payments
The best thing about auto title loans is keeping the car and using it like normal. There aren’t any restrictions on miles or where you can drive the car. You can use the car as needed as long as you make your monthly payments.
However, keep in mind that you cannot sell the vehicle while you have an outstanding balance on a title loan. You must pay the loan in full before you have the right to sell it.
3. You Risk Losing Your Vehicle If You Don’t Pay
Like typical auto secured loans, you use your vehicle as collateral for the loan. This means if you miss too many payments, the lender can repossess the car.
How many payments you must miss varies by lender, but it’s always a good idea to contact your lender if you think you can’t make your payments on time. If the lender repossesses the vehicle, you could still be on the hook for any outstanding fees they don’t cover by selling it.
In addition, a repossession can significantly damage your credit scores, making it difficult to secure financing in the future.
4. Perfect Credit Isn’t Required
One of the highlights of car title loans is that lenders don’t focus on your credit scores. Yes, they pull your credit from the credit bureaus, but they don’t require a minimum score, and most don’t use credit as a qualifying factor.
Instead, lenders focus on the amount of equity in your vehicle and if you can repay the loan. If you satisfy those factors, your credit history won’t matter much.
5. You Must Have Adequate Proof of Income
Lenders rely on the fact that you can repay the loan. You must prove you have a stable income covering your debts and the potential new title loan. This doesn’t mean you need a full-time job for two years, as many bank secured loans require. You can have many types of income and still qualify, including:
· Social Security income
· Disability income
· Passive income
· Part-time income
· Workmen’s comp
· Investment income
6. You May Get Funds the Same Day
Emergencies require money immediately, and most loans from banks or credit unions, such as personal loans or secured loans, take a few weeks or longer for final approval. On the other hand, title loans offer funds the same day if you get final approval by the lender’s cutoff time.
For example, if you apply for a title loan with online lenders early in the morning, they can review the application and request documentation first thing in the morning. If you have everything ready to submit and it’s straightforward, lenders may be able to approve the loan quickly and fund it the same day. If you request a wire, you’ll have the funds within a few hours.
Don’t worry if you miss the lender’s cutoff time. Most fund title loans by the next business day, so you don’t have to wait long for the money.
7. Collateral Loans on Vehicles Aren’t Available in Every State
Auto title loans offer an option to get fast cash, but they aren’t available in every state. If you live in any of the following states, you may need an alternative to title loans:
- Alaska
- Arkansas
- Colorado
- Connecticut
- Hawaii
- Indiana
- Iowa
- Maine
- Maryland
- Massachusetts
- Michigan
- Nebraska
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Pennsylvania
- Vermont
- Washington
- West Virginia
- Wyoming
8. The Interest Rates and Fees Can be High
One of the most important factors to evaluate when applying for a title loan is the interest rates and fees the lender charges. Interest rates can be as high as 60%—175%, plus any fees.
The interest and fees increase the total amount you must pay back, so carefully evaluate the affordability and need for the funds. Only use title loans in emergencies when you have no other way to get the necessary funds.
9. Car Collateral Loans Often Have Short Terms
Every title lender differs in the terms it offers, but some require borrowers to repay title loans within 30 – 60 days. At Swift Title Loans, we offer longer terms to make your payments more affordable and fast cash more accessible. We offer a free, no-obligation quote when you complete an online application so you can compare your options and determine which best suits your needs.
10. Your Loan Amount Depends on the Car’s Value
The amount you can borrow with a title loan depends greatly on your vehicle’s value and how much you can afford to repay monthly. Lenders focus on your car’s equity or the amount your car is worth.
Some lenders allow you to borrow up to 70% of the car’s value. For example, if your car is worth $5,000, you may be eligible to borrow up to $3,500. We recommend only borrowing what you absolutely need, though, to avoid unnecessary interest charges.
FAQ
Is it Risky to Use Your Car as Collateral?
Yes, it is risky to use your car as collateral because you could lose it if you don’t make your payments. Only use your car as collateral on loans you know you can comfortably afford, no matter what life throws at you.
Do Title Loans Hurt Your Credit?
Title lenders don’t report title loans to the credit bureaus. However, if you don’t make your payments and they send the loan to a collection agency, the agency will likely report it to the credit bureaus, damaging your credit score.
How Hard Is It To Get a Loan Using a Car as Collateral?
Title loans are much easier to qualify for than traditional unsecured loans from a bank or credit union because they use your car as collateral and don’t focus on your credit score. However, you should only use these loans in emergencies and not just because you have equity in your car.
Final Thoughts
Applying for loans using your car as collateral can be a great way to satisfy a financial emergency after exhausting all other options. However, make sure you can’t borrow money from friends or family or use equity in your home to satisfy the financial emergency first.
If you need a title loan, be sure to read the fine print to understand the interest rates, fees, and required monthly payments so you can avoid losing your car.
