How Auto Title Loans Work

To borrow against your vehicle, you must have enough equity in your car to finance a loan. In many cases, you must have paid off any other loan used to purchase the vehicle, but some lenders allow you to borrow if you are still paying off a standard auto loan. On average, these loans can range from $ 100 to $ 5,500.

The amount you can borrow is based on the value of your car or the equity you have in the vehicle. The higher the value, the more cash you can receive. But don’t expect to squeeze the full value of the car out of a title loan. Lenders want to make it easy for them to get their money back, so they only lend what they can quickly and easily receive if they have to repossess and sell the vehicle. Most lenders offer loans between 25% and 50% of the value of your car. They can also install a GPS tracking device in your vehicle to prevent someone from hiding the car instead of paying the loan. 

While you can obtain car title loans from store finance companies, you may also be able to borrow against your vehicle through your credit union or bank. 

Investigation

Do an extensive research on cash car title loans and the various lenders out there. Car title loans are low-risk loans for lenders, which is good for you, too. This means that there are many lenders who make car title loans. You should look carefully for the right place, because the interest rates on these loans are high, so you should take the time to find a lender with the lowest rate.

Interest rates

The interest rates on these loans can be incredible. Auto title cash loans are typically short-term loans, lasting no more than 30 days. Because of this, lenders charge a high percentage rate to ensure you make money. The percentage rate they give you will be the monthly rate, which can look good on the surface. They may say 20 percent, but that’s a monthly figure. You need to multiply that by 12 to get the annual interest rate, which would be 240 percent APR. This is absurd and is a real danger for these loans. If you cannot pay your loan on time, you will likely see your interest rate rise to an even higher level.

Value

The amount of the car title loan is determined by the value of your car. A lender will normally allow you to borrow up to half the value of the car. This is because if you default on the loan, they will get your car back and sell it themselves. That leaves room for them to make sure they get back at least what they paid for the loan. Make sure you get a fair price for your loan. They may also require you to add a little more insurance to the car, as they will keep the title while you can still drive the car.

Dangers

As you can see, there are clear dangers with this type of loan. If you default after the period, which is usually 30 days, they have every right to take your car from you. However, you may be allowed an extension, in which case you will have more time to pay. You will then have to pay an even higher interest rate, and sometimes you will end up paying double or triple what the original loan was worth. If you can’t do that, you can lose your car.

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