Title Loans: What You Need to Know Before Signing Over Your Car’s Title
Money & Co

Title Loans: What You Need to Know Before Signing Over Your Car’s Title

Times are tough, and when an emergency expense occurs, a lot of people don’t have the money to cover the expense. Recent data shows that the average household has $5,200 in savings, but this figure is very misleading.

Why?

Higher income households save drastically more than lower income homes. Older individuals have also saved far more than the 35-year old that has an account balance of $1,580. And those that make under $25,000 a year save only $500 per year.

If you go back to 2015, you’ll find that most Americans have less than $1,000 in savings; a lot of people are living paycheck-to-paycheck.

So, when an emergency occurs, these individuals will scramble to get cash.

Title loans are an option for fast cash, but how do they work and what are the benefits of these loans?

What are Title Loans?

Title loans are exactly what they sound like: you put your title up as collateral for a loan. For example, let’s assume you’re trying to secure title loans in Fort Lauderdale (a city and state that allows title loans).

You'll be putting your vehicle’s title up as collateral.

The lender may allow you to continue driving your vehicle as long as you continue to pay back the loan. But if you default on the loan, the lender can repossess the vehicle and it will now be their property.

You signed over the title of the vehicle to the company.

Every title loan company has their own requirements for a loan, so they may or may not allow you to drive your vehicle during the repayment period. Some lenders will take possession over the vehicle until the loan is satisfied.

When you go to the lender, you’ll be bringing your vehicle along with the title.

The lender will do their own research on the vehicle to determine how much money you’re eligible to request. Vehicle condition will also be considered, so an immaculate vehicle will fetch a much higher price than a vehicle that is in poor condition.

Don't expect the lender to give you the full market value of the vehicle.

Let's assume that your 2015 Civic is worth $10,000, and this is a fair market value based on the condition of the vehicle. But there are costs for the lender as well as risks. You might crash the vehicle, or it may be damaged when allowing you to drive the vehicle.

There are also costs involved for taking possession of the vehicle as well as costs for paying for the vehicle’s value to be determined.

So, you’ll likely receive a loan up to $5,000, or 50% of the vehicle’s value. When you opt for a title loan, you’re going to benefit from:

  • Lenders overlooking your credit issues
  • Cash in-hand that is received quickly
  • Cash that can be used for any need you have

But you’re also putting the lender at a higher risk. The lender can overlook bumps and bruises on your credit. The risks of title loans are:

  • You must own the vehicle outright to put it up as collateral
  • Higher fees will be assessed due to the higher risk for the lender
  • Defaulting on the loan will lead to losing your vehicle
  • Interest rates are also significantly higher

Title loans are just one of the many options available when you need money fast. You can opt to pawn off some of your possessions, or you could choose to take out other loan alternatives. Always do you research on the lender and find out what others are saying about a particular lender.

You may find out that the lender is not legitimate, so they will add extra fees to the loan or do everything in their power to ensure that the vehicle will be repossessed.

Other loan types that offer fast cash when you have bad credit may be easier to obtain, but you need to pay close attention to the APR. These rates can often be outrageous, with rates of 300% or higher in some cases.

These loans are often designed so that you fail to pay them back properly.

Make sure that the loan you receive is fair, interest rates are clearly listed and the company has great ratings.