Understanding the Advantages and Risks Of Car Title Loans

More and more people are turning to car title loans as a way of getting money in a hurry. Although these short-term loans provide a lot of advantages, there are some drawbacks to them, as well. Understanding the benefits and risks associated with these loans can help you decide if they are the best choice for your situation.


Speed is one of the primary benefits associated with car title loans. The total processing time for these loans is usually less than a couple of days. The loans are approved quickly since the lender doesn’t have to review a lot of information to make a decision about whether or not to provide you with a loan. In most cases, they just need to look at the value of your car.

If you own a vehicle, you can qualify for one of these loans. Unlike other types of loans, you don’t have to worry about passing a credit check. Instead, the lender uses your car as collateral for the loan. This type of loan is known as a secured loan. This is a lot different than unsecured loans where there is no collateral and the lender just has to take you at your word that you will pay it back. By securing the loan with your vehicle, it eliminates a lot of the risk for the lender. That is why the approval process for these loans is a lot easier than other types of loans.

If your credit rating isn’t as high as it should be, going with one of these loans could be a good option. Trying to get money from a traditional bank to cover unexpected expenses is practically impossible with bad credit. If you own a vehicle, however, you can qualify for a title loan no matter how low your credit score is.

One great thing about these loans is that you don’t have to give up your car. Instead, you can continue driving it. Even though you are required to provide the lender with the title of your vehicle and a set of keys, you don’t have to give them the car itself. That means that you can continue driving to work to earn the money that you need to pay back the loan.

Downsides and Risks

Most title loans need to be paid back quickly. Typically, the loan term is less than a month. Although the interest rate starts out low, it usually climbs quickly if you need to add additional time onto the length of your loan. If you borrow a large sum of money, it may be extremely difficult to pay it back quickly enough to avoid additional fees and interest. As a result, you may wind up having to pay back a lot more money than you anticipated.

Since title loans are secured loans, there is always a chance that you could wind up losing your car if you don’t pay the loan back. If you stop making your loan payments, the lender can seize your vehicle and sell it to get the money that they are owed. If they aren’t able to get enough money through selling your vehicle, you may still have to pay them extra money. Adding insult to injury, if they sell the car for more than what you owe, they keep the extra money rather than giving it to you.

A lot of times, people jump into these loans without really thinking them through since they are so fast and easy compared to other borrowing options. It is important to be aware of the risks involved. You need to understand that there is a real chance of losing your vehicle if you don’t make your payments.

Even though there are a lot of risks involved, these loans still are a viable option for borrowers with bad credit. The key is to make sure that you can pay the loan back on time. You should also never borrow more than you can afford.

Proceed With Caution

A lot of lenders who deal with car title loans don’t have the best interests of their customers in mind. In fact, this industry is rife with predatory lenders. It is important to understand exactly what you are getting into if you decide to take out one of these loans. A lot of people have wound up losing their cars because they didn’t read the fine print of their loan agreement. Since lenders often make the terms of these loans extremely unfavorable for borrowers, they can be challenging to pay back.

With a vehicle title loan, the loan itself is secured by the title of a vehicle that is owned outright. In most cases, these loans need to be paid back in a month or less. If the loan term needs to be extended, the interest rate can quickly skyrocket. In many cases, the loans that are provided are also a lot lower than the total value of the car. A lot of experts frown on car title loans since they are geared toward borrowers with low income levels that make it difficult to meet the terms of the loan. Although some states have enacted legislation against unfair lending practices with these types of loans, changes have not yet happened at a national level.

Even if you need cash in a hurry, you should explore all of your other options before opting for a title loan. Some alternatives that you may want to look into include getting an advance from your boss, taking out cash on a credit card, or applying for a personal loan.