The Important Figures And Numbers That Make Car Title Loans WorkFast Action Finance
There are many available credit options for people who need quick cash that lenders cannot provide due to strict regulations. One such option is the use of a car title loan facility. This benefits people who own cars as the car title is used to secure their loan. In such a transaction, the lender rarely considers the credit worthiness of the borrower, as long as they can guarantee that the title of their vehicle will be used as collateral for the short-term loan.
Amount of loan
In lending an auto title loan, the lender has to ascertain that the title exists and it indeed belongs to you. The car is then valued at market rate so that the lender can calculate the loan-to-value ratio. This ratio is a measure of risk, and it assists lenders to know how much money they can lend to a borrower. In most cases, the amount of money you can get is between 25% and 50% of your car’s value. Usually approval is done within several hours or days of request.
A car title loan is a short-term loan that may not otherwise be sought from banks due to stringent payment conditions. Most lenders give a 30-day timeline within which the loan should be repaid. In instances where you may not be able to finish paying up the debt in time, the loan may be rolled over to the next month, with additional charges. Before you receive the requested amount, you will be required to furnish the lender with your car’s title documents and a copy of the car keys so that they can repossess your vehicle in case of default.
There are also debts whose payment duration is 90 days. For such, the interest rate is varied to suit the extended time period. They are mostly used by borrowers who receive seasonal income from contracts to provide services such as consultants and suppliers who rely on tenders.
These loan facilities attract high interest rates, usually charged in triple digit amounts of between 100% and 300% annually. Read carefully through the facility’s paperwork provided to you beforehand so that you can understand the Annual Percentage Rate (APR) of the loan. This rate points out how much the loan ‘costs’ and it factors in the risk of default which is very high in such cases. Given that the repayment period is only one month, the APR is calculated on a monthly basis, and not annually as is the case with most banks.
This credit option is specifically made to target people who earn a low income which limits their ability to borrow quick cash from banks and other lending institutions. Sole proprietors and businessmen who receive irregular or seasonal income can also get title loans. This is because they can be used in situations where money is urgently needed, and going through rigorous and lengthy bank processes is not beneficial.
On average, the amount of money lent to borrowers is between $100 and $5,000. Such small amounts are convenient and easy to pay back as compared to other institutions which have higher minimum borrowing amounts.
Additional fees and charges
If you are unable to repay your loan within the 30-day period, you have a chance of rolling over the debt to the next month. However, make sure you inform your lender of your inability to pay and your consent to the roll over. A small fee may be charged to cater for the inconvenience caused to the lender and an increase in the risk factor; it is called a ‘roll over fee’. Agree on the terms of the roll over fee prior to the contract to avoid any misunderstanding in the course of performance.
Provide all the notices as you are required by your lender to avoid being penalized as this will cost you quite some cash. Also, make sure that you are aware of the extra services not included in the contract such as processing and document preparation; they may attract additional charges.
Use of the car during the loan duration
One amazing advantage of using your car to get a title loan is that you can still use your car for your personal activities during the period of the loan. This means that you do not have to incur extra transportation costs going to work or dropping your children to school at that time. What is required of you by the lender is that you are able to meet the repair and maintenance costs of your vehicle as you are using it. This prevents deterioration of the car’s condition, and no lender will repossess a spoilt asset.
Once you have understood all the costs and charges involved in getting an auto title loan, you will be in a much better position to plan on how much money you can borrow, and how you will pay it back.