Title Lending: What Is It And How Can It Help You Save Money?

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Title lending can be a great way to get a quick influx of money in an emergency.

Every year, about 2 million Americans turn to car title loans to get money when they have bad credit and need funds. They can be used to cover any type of expenses.

Keep reading to learn what a title loan is and how title lending can help you out of a tough financial situation.

What is a Title Loan?

A title loan is a short-term loan that’s used by people who usually have bad credit and don’t have many options to get cash quickly.

With a title loan, the amounts are small, with amounts ranging from $200 – $2000. These funds are typically paid back within 30 days. If they’re not, then you can be charged interest.

A title loan could make it more difficult to manage your debt because there are high-interest rates if you can’t pay the loan back within 30 days.

What Do You Need to Get a Title Loan?

Going the more traditional route for a loan means going to a bank or getting a credit card. Both of these options require a good credit score and proof of income.

The good thing about a title loan is that they are easier to get than bank loans because they don’t require a credit check.

If you have bad credit, you can get a title loan.

Even if you have no proof of income you can get a title loan.

You do have to show that you own your car outright. You can’t offer the title of your car as collateral if a bank technically still owns your car.

Buyer Beware

As with any type of loan, there are some things to watch out for with auto title loans.

Be aware of what you can afford. Yes, it may be very appealing to be able to get a title loan for an injection of quick cash.

Does that mean that you should go out and get a new TV for that cash? Probably not.

If you can’t pay back your loan, you could get your car repossessed.

Read the Fine Print

Some lenders are a little shady and while they advertise their loans as auto title loans, they’ll refer to them as customer installment loans in the contract.

There’s a big distinction between the two.

With an installment loan, some lenders can charge whatever they want for interest, and expand those payments out for years.

Understand Florida Law

Title lending is subject to rules and regulations under Florida law. First off, a title lender has to be licensed to operate in the State of Florida.

Under title lending, a lender can charge up to 30% interest for the first $2000 that you borrow. So, if you take a year to pay that loan back, you’ll pay a total of $2600.

If you borrow more than $2000, the law has a tiered approach to interest rates.

  • First $2000 capped at 30%
  • Additional funds between $2000-$3000 are capped at 24%
  • Anything over $3000 is capped at 18%

Read that carefully. It doesn’t mean that there’s an incentive to borrow more than $3000 because the interest rate for the entire loan is 18%. The only funds that have an 18% interest rate are anything over $3000.

Potential Worst Case Scenario

Any time you can’t pay your bills or take out credit, there are financial risks involved. It is your responsibility to know these risks before you go for the easy money of loans.

The big question is what happens if you can’t pay back your loan? Remember, you gave your car title as collateral. That means that if you can’t pay back your loan, the title lender has every right to repossess your car.

Not only that, they can sell your car, and charge you more expenses. You’ll have to pay back the expenses to tow and auction your car. They have to be within reason, but you’re still going to be responsible for them.

You’ll be paying for a car that you no longer own, so you should understand what the risks are before taking out an auto loan.

What to Look for in a Title Loan Company

Once you understand the risks and sometimes shady practices of auto title lenders, you need to know how to find a reputable title lender.

Licensed in Florida

Title lenders are required to be licensed by the state Office of Financial Regulation. This should be the first thing to look for in a title lender.

Transparency

The best title lenders are transparent when it comes to their title loans.

They’ll go beyond what the law requires and help you understand in simple terms what the loan amount is, what the interest rate is, and what the entire loan amount will be if it takes a year to pay it off.

Title loans are meant to be short-term, 30-day loans, but you need to be clear what that loan will cost you in interest if you can’t bay it back in 30 days.

You Can Still Drive Your Car

When you’re shopping for a title lender, you’ll want to be sure that you can still drive your car for the life of the loan.

Since you’re offering the car title as collateral, some lenders will require that they hold on to the car until you pay back the loan. That means for at least a month, you’ll be without your car.

Look at Reviews

Auto lenders have a track record and you can find that track record online. Take a look at reviews that people have left about title lenders that you’re considering.

You can also check their ratings with the Better Business Bureau.

Title Lending Can Be a Big Help

If you need cash in an emergency and you have nowhere else to turn, using your car title can help you get out of a jam.

You do need to be aware of the potential drawbacks, your budget, and your ability to pay back your loan quickly.

Do you want to learn more about managing your finances? Take a look at our blog today.

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