Many people who are in need of urgent cash often turn to car title loans as a solution. But this is not the best way you can go about obtaining cash quickly. Car title loans are short-term loans that require borrowers to offer collateral in the form of their vehicles, held against their debt amount. Car title loans are known to have significantly higher interest rates than traditional bank loans, often trapping borrowers in a cycle of debt. Besides car title loans, there are various loan alternatives that we will talk about in this article. Below, we’ll give a quick overview of car title loans.
To get approval for a car title loan, borrowers must own a vehicle fully in their name, free and clear, and present the title to the lender. The lender then looks at some criteria along with necessary documents like photo ID, proof of insurance, vehicle registration, residency, income statement, etc to decide on whether to approve the loan. Some lenders may even request to install GPS-tracking devices or keys to the vehicle. The amount that you can loan is dependent on the value of the car but is usually limited at half of the current worth of the car. Car title loans are usually meant to be repaid in the short term, usually around 15-30 days, and they also have a high annual percentage rate. These interest rates are much higher when compared with conventional bank loans.
Most people who turn to car title loans are traditionally those with limited alternatives to finances. However, car title loans are expensive and the interest rate can amount to more than the original sum borrowed. A $1000 loan with 25% interest per month will cause the borrower to owe $1250 in 30 days, on top of any additional lender fees. With such high rates, many borrowers fail to repay in time and thus lose the vehicle that has been set as collateral.
If you’re looking to take out a car title loan, think twice and read on to find out some of the other ways you can obtain some extra finances in a hurry. These financial options and debt reduction methods can be useful for those in need of fast cash.
Credit Card Cash Advances
Credit card cash advances are known to be expensive, but still have lower interest rates compared to car title loans. An individual looking to borrow and who possesses a credit card, a line of credit (LOC), and an assessed ability to repay the loan within a given time will most likely be approved for the loan. Such loans are far less expensive compared to title loans. However, be aware of a pile-up of interest rates if the balance cannot be paid off in time.
Short Term Bank Loans
Before taking a car title loan and landing yourself with huge interest rates, borrowers should consider traditional loaning from local banks or credit unions. Ordinary title loans are more expensive than even the most expensive bank loans. Banks may also choose to make collateral loans to borrowers even if they only have a mediocre credit history. This means to say that employed individuals can borrow from the bank, with their cars as collateral, but only face bank-level interest rate loans.
Help from Family and Friends
Instead of turning to banks and credit unions, you can consider turning to friends who might be willing to gift or loan the needed money. However, it is important to state the agreed-upon interest rates and repayment plans in written contracts for the sake of all parties involved in the loan situation. Interest rates by friends and family are often significantly lower than traditional banks and car title loans, but borrowers can still offer their vehicles as collaterals as a good-will gesture to their lenders.
Peer-to-Peer loans are not funded by banks but instead by investors. As such, the rates of approval are usually higher than for similar situations in bank loan applications. Interest rates also tend to be much lower. However, take note that sometimes, the minimum loan you can take out for a peer-to-peer loan can be higher than the minimum amount for car title loans and you may end up borrowing more money than what you actually need. One good thing is that it usually allows for prepayment without penalty.
Social Services or Charities
Social services like state welfare offices, also known as general relief offices, can offer emergency money assistance for those who need it. You may gain assistance not in the form of cash but in other ways like food stamps, internet services, a lowered cost of or even free childcare, etc. Religious institutions like churches often also supply needy households and individuals with food, help them with housing, education and assist them with job referrals.
Extra Part-Time Job
Instead of taking out loans from the start, perhaps individuals can supplement their income with a temporary extra job. These jobs are often employed on a project basis and are not for long-term employment. Potential borrowers looking for some extra cash can take the initiative to look for some extra jobs which are out there.
Credit and Debt Counselling
For those who have repeatedly fallen short on cash and often have to fork out more cash in the long run for fast money, a possible option is to look for a certified consumer debt specialist (CCDS) and get some advice on their spending habits. These professionals can help individuals come up with strategies to cut spending costs, reduce debts, and start saving up for the future. The specialists will be able to explain the costs and benefits of short-term loans to borrowers and help guide them towards better and more sustainable alternatives.
Negotiating with your Creditors
If borrowers are struggling with paying their loans, they can try to reach out to their creditors to try to work out possible alternative payment arrangements, to lower interest rates, negotiate discounts, waive late fees, and other possible concessions, etc. This may help to reduce the financial burden and prevent getting trapped in a cycle of debt.
The next time you are thinking about taking a car title loan, make sure to explore all your other possible options before jumping into it. One way is to search for title loans near me into Google’s search bar to kickstart your research process. Car title loans are often predatory for their high-interest rates and often target those from low-income backgrounds. These are also the people who get trapped in the cycle of debt for failing to make repayments for the expensive loans.