In some states, the propagandas of car title loans are advertised everywhere and promoted as an easy and quick way to get money out of any economic trouble. But they can also be a very easy and quick way to lose your vehicle if the debt in default.
It is noteworthy that the vast majority of these loans do not require credit check, since the main requirement is that the title free of creditors is located; in other words, the vehicle must be paid in full and title to your name . Other documents required, is the driver’s license and proof of income, although they need not have a job. But it does require a source of income you have.
In addition, the lender will need to inspect the vehicle to make an assessment, as this will depend on the amount you can borrow.
What makes it attractive for these loans is how quickly granted because the approval process can take less than an hour.
This type of loan is characterized not only by the speed and ease but also by the high interest rates they charge, which can range between 36% and 360% annually.
The lender usually estimates the auction value of the vehicle and can provide an amount ranging from 25% to 50% of that value. For example, if the estimated value is $ 5000, the loan amount would grant would be between $ 1.250 and $ 2.500. Thus ensures a profit margin if the debt falls into default and have to impound the car for later auction.
These loans are very short term, generally less than 30 days, being one of the main reasons for the difficulty of paying them, since consumers generally need more than 30 days to pay a loan plus interest, and for this reason many They renew the loan, which means starting a new cycle of high interest debt. Thus, when the consumer is unable to make payments, debt falls into default, and the lender can take possession of the vehicle and then top it off.
In some states this type of loan is illegal because they consider them as a form of predatory lending, while in other states are under strict regulations and limits of rates and fees they can charge, but still, the loan is very costly.
– There are several reasons why many people opt for this type of loans including
– Suddenly they need cash because of an emergency as an urgent repair or medical expense.
– They need money immediately and can not wait for a bank approval.
– Micro-entrepreneurs who need quick cash to cover a shortage of working capital.
– People with low credit score that do not have access to traditional financing methods.
It is best to avoid these types of loans and rely on traditional funding sources and it must establish and maintain a good credit score, so you can keep credit lines open with any credit card in case of emergency. Not more, establish an emergency fund that will eventually earning interest in the bank, and you can use it for contingencies.