How Title Loans Work: Debunking Common MythsFast Action Finance
Most of us have heard of title loans, but how many of us really understand them?
With so many myths, misconceptions, and rumours circulating about them, itâ€™s understandable why people would be wary and left with so many questions.
Some unscrupulous lenders have painted the whole industry in a bad light.
Let’s look at how title loans work and debunk some of the common myths surrounding them.
How Title Loans Work
Basically, a title loan allows you to use your vehicle as collateral to secure a loan. In exchange for the loan amount, borrowers will register a lien against their vehicle until the loan is repaid.
Myth: You Canâ€™t Get a Title Loan if You Have Bad Credit
A sudden financial emergency can happen at any time, to anyone. If weâ€™re lucky, we have the funds to cover it. However, sometimes, we need quick access to money with a minimal amount of hoops to jump through.
If you have existing bad credit or limited credit history, most forms of loans wonâ€™t be available to you.
This is not the case with a title loan. Because you have secured the loan based on the equity in your vehicle, the lender accepts this as collateral and typically does not require a credit check.
Most lenders will not look atÂ your credit score.
Myth: Interest Rates Are Always High
Like the majority of financial products, interest rates will vary from product to product and company to company.
While it is the case that a title loan generally has a higher rate of APR than mortgage equity or personal loans, there are still ways to keep the amount of interest you pay to a minimum. They are definitely preferable to the predatory payday lenders or unregulated loan sharks.
The interest rate will depend on a lot of different variables such as the amount you borrow and the length of the repayment term. If you take out a title loan over a shorter period, you can decrease the APR significantly. A title loan should be a shorter term than a standard mortgage.
Myth: Every Lender Charges the Same Fees
Like most financial services, competition is high between businesses. This is as true for title loan companies as it is for banks and credit unions. They want your business, so take advantage of this by seeking out the best rates and lowest fees.
Borrowers often assume that all lenders charge the same, so they fail to shop around for the best deals.
You can also ask a lender if they are able to improve their rates and fees. Donâ€™t be shy. It canâ€™t hurt to try, and often they will be accommodating.
Myth: Getting a Title Loan Is Complicated
Getting a loan means filling in a ton of application forms, and providing documents and identification, right? No, in fact, a title loan is one of the fastest and simplest ways to get a loan.
Typically, you can fill in the application online in minutes and the lender can then arrange to evaluate your vehicle. Once this is done, you can receive your loan. You can have your cash within days or even hours.
Myth: There Are Penalties for Early Repayment
Most of us want to pay off our debts as quickly as possible. But one of the greatest myths around title loans is that you are charged a large penalty for paying them off early.
Lenders want you to pay off your loans and most of them charge only a small amount as a penalty for paying them off before the term of the loan.Â In most cases, there will be no penalty charged at all if the loan is paid off after six months.
Before you take out a title loan, check that your chosen lender will let you pay it back early should your financial situation improve suddenly. You could pay a little extra every month or (if youâ€™ve been lucky enough to come into some money), the whole amount.
Myth: You Have to Hand Over Your Vehicle to the Loan Company
This particular myth does have some basis in truth. Â Many years ago, the only companies that would let you use your car as collateral were pawn shops. This worked in exactly the same way as if you had pawned your jewelry or TV. You would hand over the item until you paid back the loan.
This isnâ€™t the case anymore. You need your car to get around and lenders understand this and arenâ€™t interested in keeping your vehicle. Allowing the lender to register a lien against your vehicle is generally all that is required and you can keep using the car as you normally would. However, there are cases where a loan amount is very high, the scenario is tricky to the lender or the borrower does not have insurance that the lender will allow you to leave your car with them for them to lend to you, but these are exception to the rule.
Myth: Youâ€™ll Never Pay Your Loan Back
SinceÂ the last recession, confidence in financial services providers is at an all-time low. Most people believe that banks and loan companies are capitalizing on peopleâ€™s financial problems without consequence.
Undoubtedly, there are unscrupulous, predatory lenders out there. This is why its vital to do your research on a company before you sign on the (virtual) dotted line.
Read customer reviews, clarify all the terms and conditions of the loan, and if you have a bad feeling about a particular lender, donâ€™t take the risk.
Do Your Homework to Find the Best Deal for You
Now that weâ€™ve debunked some of the most common misconceptions about the industry and you know how title loans work, you are in the best position to be able to find the right one for you.
Do your research, make sure that you get the best APR and repayment terms that you can, shop around, and donâ€™tâ€™ forget to read the small print.
If you’re still looking for the right loan for you, call us today orÂ give us a visitÂ to see how we can help.