10 Questions and Answers to Payday Loans Near Me 550

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Title Loan

By Julia Kagan

Updated January 15, 2021

Review by Thomas Brock

What Is a Title Loan?

A title loan is a loan which requires an asset as collateral. Title loans are popular for two primary reasons. First, an applicant’s credit score isn’t taken into consideration in determining the eligibility for the loan. And second, thanks to less stringent requirements for application that a title loan is able to be approved quickly, for amounts as small as $100.

Key Takeaways

A loan that requires an asset as collateral is referred to as a title loan.

Title loans are well-known because they do not take into consideration the credit score of an applicant and because they can be approved quickly.

The most common kind that is a title loan is one that is a title car loan, where the car itself is the asset put on the line as collateral.

Title loans are typically taken by those who require cash quickly or in financial difficulty.

The prices associated with title loans are exorbitant and they are considered to be a poor choice for financing.

What is a Title Loan and How Does It Work

The most common kind of title loan is a vehicle title loan. In this scenario the potential borrower is required to own a car outright and sign it over to an automobile loan firm. The loan company will lend at least 25% of vehicle’s worth to the person who is borrowing and keep the car’s title as collateral in case in the event of default.

The typical car title loan amounts are $1,000, although they can be higher. The usual length of the loan is between 15 and 30 days but can be longer. Borrowers can repay the car title loan by making a single payment generally after one month, or pay back the loan on a multi-year installment plan. If a borrower doesn’t pay off the title loan in accordance with the repayment plan, the car can be confiscated from the loan Title company. The loan company may also consider permitting a person who is in default make interest-only payments over one month which effectively roll over the loan amount for as long as it takes until the loan is repaid.

Special Takes into Account

Title loans could be appealing for people with poor credit or those with financial difficulties who require quick cash. But, there are high cost related to title loans particularly car title loans that ought to make borrowers think twice before taking them.

APR: The rate of annual growth (APR) on the average car title loan can be up to 300%, and is nearly always higher than 100% interest. The APR’s high rate can lead to a financial treadmill where borrowers cannot catch up and make the loan’s principal payment. For this reason, the auto title or car title lenders are often referred to as “predatory lenders” because they tend to target people in need of cash in times of need.

Example of a Title Loan

For instance the $500 car title loan which is due to be paid back within a one month period. The loan has An APR of percent. This is 20 percent. Under these terms the borrower has to pay the car title loan company $600 in principal and interest in order to repay the loan. If you need to pay $500 fast to pay it off, paying an additional $100 in interest within one month can cause additional financial hardship.

Or consider a $5,000 car title loan that must be repaid in monthly installments over 24 months, and has an annual percentage rate (APR) of 108 percent. In this case, a 24-month car title loan, with monthly compounding, would cost the lender $7,362.71 in interest costs in addition to the initial $5,000 principal, for a total payoff amount of $12,362.71. That’s not even including charges.

Other Alternatives to Title Loans

Though titles loans may be a tempting option when going through financial difficulties, they often place a person in a more difficult financial position than they were prior to because of the charges and high rates of interest. The world of finance is wide and there are plenty of alternatives to title loans.

Some other options include credit cards. Although they come with high rates of interest, they are not as costly as the rates in the case of title loans. Before taking on more debt, however, an individual can renegotiate their current credit with their bank or credit card companies. They may also request an extension of their debts from their creditors, and they may be willing to accept in the short term. A personal loan is superior over a secured loan where one has to provide collateral. While loans that are unsecured loans are more expensive when compared to secured loans due to the increased risk for the lender, personal loans offer better rates than title loans.

If you’re considering an unsecure loan It’s worth using a personal financial calculator to understand how an interest rate will impact the amount of interest that is paid by the end of the loan.