A loan is an agreement between a lender and a borrower in which the lender gives the borrower a sum of money with the understanding that the borrower will repay it with interest. The borrower must usually make a minimum monthly payment on the loan. However, when borrowers default – or fail to repay their loans – lenders often have no way of collecting that money. For this reason, lenders are hesitant to lend money unless borrowers can pledge something as collateral. If the borrower fails to repay the loan, the lender seizes the collateral as payment.
For an auto title loan, the collateral is an automobile that the borrower owns. If the borrower fails to repay the auto title loan, the lender can seize the car and sell it to pay off the remainder of the loan balance. Because this arrangement could lead potential loss of a vital asset, you need to take a few things into consideration before going forward with an auto loan.
Ability To Repay
Before getting an auto title loan, the first and foremost issue that you must address with your lender – and yourself – is your ability to repay the loan on time. If you do not have a steady income, a loan is not the answer to your financial woes. Once that loan money is gone, you will be in even worse shape than what you are in now. Consider getting a job with a reliable income first, and then proceeding with the loan if you still need it. Also remember that, even if you already have a job, if the money you make is not enough to cover your current financial liabilities, getting a loan will only make your monthly bills even higher – and could possibly lead to the loss of your vehicle.
It is important to note that an auto title loan lender will not necessarily have your best interests in mind when giving you an auto title loan. In fact, many lenders will make you a loan with the expectation that you will be unable to repay it on time or at all. Keep this in mind.
Also keep in mind that many auto loans need to be repaid with interest 30 days after the loan is taken out. If you do not have a solid plan to repay the loan on time, you probably should not take out the loan.
Reason For The Loan
Another vital thing to consider when it comes to an auto title loan – or any loan – is your reason. Why do you need the money? If you need it to pay for an emergency medical procedure or to start your own business, then getting the loan may be a good idea. However, if your reason is simply to supplement your monthly income or to purchase a plasma television, you should probably think it through some more. A loan that requires recurring monthly payments is not a supplement for your monthly income, and a plasma television is probably not worth risking your car for.
Lenders of auto title loans are notorious for charging high interest rates. It is common for them to charge 100 percent interest for their loans. In looking for a loan, remember that you are not asking for a favor: you are the customer. As such, you have the right to shop around and find the best interest rate available. Do not fall victim to predatory lenders. Regardless of what a lender may say, if his or her interest rate seems predatory, there are probably competitors nearby who would offer you a better interest rate.
Make sure that you factor your interest payment into the total cost of the loan. Many borrowers are surprised by large interest charges that they are unable to repay.
Regarding the loan amount, the upper limit for most lenders is 50 percent of the resale value of the vehicle according to Kelly Blue Book. In determining how much you wish to borrow, do not simply take as much as you can get. Only take as much as you need. Even when you get a relatively low interest rate on your loan, auto title loans still carry high interest rates compared to other types of loans.
The stark truth about auto title loans is that, in some cases, they do result in people losing their vehicles. While lenders often are willing to work with borrowers who are late making payments, they do at times follow through with seizure of the vehicle, which they then sell to recover their investment. For the borrower, the loss involved in such a situation extends beyond the sale value of the vehicle. If the vehicle is the borrower’s only vehicle, he or she may no longer be able to travel to work, possibly resulting in job loss, which can lead to far-reaching economic problems.
If you are hard-pressed for cash but are afraid of the risks involved with auto title loans, consider some of the alternative ways to borrow money. One alternative is to use credit cards. Even if you have a poor credit score, you may still be able to get a credit card with an interest rate that is comparable or better to what you would pay on an auto title loan. If this is not an option, you may be able to get a payday loan. Another alternative is selling something valuable to a pawn shop. While this may not be an attractive option, selling a piece of jewelry usually does not cause the far-reaching problems that losing your only car can cause. You can also ask friends and family for personal loans. (To learn more about payday loans, see The Pros And Cons Of Payday Loans.)
Your car is probably a very important part of your financial well-being. Therefore, if you are considering an auto tile loan, you may want to look into some of the alternatives before putting your car on the line. However, if you have decided to take out an auto tile loan, make sure that you shop around for the best deal possible. Doing your homework ahead of time you help you ensure you get the best rate on your loan.