An auto title loan is a loan that is made based on using your car title as collateral. Typically, the title loan companies primary customer is the person that barely makes it payday to payday and occasionally gets in a financial strain before payday. Unexpected expenses such as; doctor visits, car repairs or other type of expenses are enough to surpass the persons already tight budget. So, you can see how the loan can quickly have advantages and disadvantages.
Are Auto Title Loans Bad?
That is a loaded question. They can be either and it really depends on each individual situation for needing a car title loan. If you get a loan and pay it back as agreed then it can be fairly painless despite the high loan rate you will pay. However, if you simply keep making the minimum loan interest payment thinking you will pay it off next time, this can lead to an exorbitant amount of money you have paid in fees. When you are thinking about getting a title loan, really evaluate your situation and budget to determine if you will be able to repay the loan on time to avoid those rates.
These loans are termed ‘predatory’ by some people because they do have high fee’s. However, the primary intention for the loan is for it to be a short term loan, unlike bank loans and other financial avenues that offer lower rates to people with good credit. According to a recent post by QED Financial in Mesa, the average title loan customer in Arizona for example has credit scores between 400-550 so the traditional lenders will not approve a loan for them.
These loans certainly do demand much higher fee’s than a traditional lender but that’s where things get sticky. Traditional lenders and other financial sources frown at the higher fee’s charged by these companies but they are not will to take on the risk of lender to people with subprime credit. There is definitely two sides to a coin but in reality when a person needs a loan they will do business with whoever can help them overcome their current financial obstacles.
Why Do People Get a Car Title Loan?
The primary reason is that they acquired an additional expense that exceeds their budget (source: QED Financial), therefore they need a little financial assistance until they can absorb the expense. Many states have outlawed payday advance loans so for people with no credit (or bad credit) the only option left is to get a title loan. These loans are really quick and simple to get since they generally do not require any credit check and the companies that do check credit are not concerned about a lack of or any bad credit that has been reported. They are primarily looking for any civil judgements, liens etc., that could jeopardize your sole ownership of the vehicle being used for the loan.
How These Title Loans Actually Work
- You will complete the application and the lender will approve the loan request based on your information and your equity in your automobile. Most auto title loan lenders prefer the vehicle be paid off but a few will still lend money to you if you have a fair amount of equity in the automobile.
- Documentation you will need is; a valid drivers license, proof of insurance and the vehicle title that is in your name. You will also have to take the car to the lender for an inspection.
- In reality, this is also referred to as a secured loan because the lender will hold the title to your automobile until the loan is paid in full. Once the loan is paid you will get your title back.
- You get to continue driving your car during the course of the loan repayment.
Why Do People Say These Loans Are Bad?
There can be several reason for different opinions about a car title loan but the primary reasons are:
- High rates for the amount borrowed
- Some people get caught in a trap because they fail to make full payments
- If you get too far behind in your loan agreement, the lender can actually take your automobile.
Many people love the simplicity of these loans and have used them several times. But, you need to fully understand the terms of the loan if you are not familiar with them. Stop and read all documents before signing them and become educated. When in doubt, ask the lender to explain any terminology or parts of the contract that you do not understand.
Most states are basically the same when it comes to title loans and how they work. In states where they are legal, there can be some variances such as minimum age to get a loan, total amount of the title loan, etc. Be sure to check with your local auto title loan authority to determine which laws are applicable. In this instance we interviewed QED Financial which provides online title loan matching services for Arizona and the local authority for AZ is aztla.com.