The average amount of personal debt in America is about $38,000.
With that number creeping upwards as an increasing amount of people find themselves living outside of their means, the need for additional loan options grows.
For borrowers with low to average credit, a go-to when it comes to borrowing money is taking out a car title loan. That’s because the best car title loans offer fair fees and a streamlined approval process.
Before you run to your local loan purveyor and request this loan type, read the following three facts to better understand what to expect.
1. You Must Have Equity in Your Vehicle
A car title loan allows you to pull value out of your car and borrow against it.
Given that fact, if you don’t own any value in your car (ex: your car was 100% financed and you haven’t made any payments yet), you can’t take on a car title loan.
Note that you don’t have to own your car outright to borrow against it. You just need to own an acceptable amount of equity in it.
That level of “acceptable equity” will vary from lender to lender.
2. By Borrowing Against Your Car, You Risk Losing It
When you borrow money against your car, you’re selling the portion of your car that you own to a lender.
You’ll then buy back that ownership stake at an increased price.
If you can’t make payments to buy back ownership in your vehicle, your lender can claim your car and have it repossessed.
If your car is essential to your ability to manage your responsibilities and you’re not confident you’ll be able to pay back whichever title loans you choose to take on, avoid this loan type. There may be better, non-collateral loans available to you which carry less risk.
3. Interest and Fees Can Be High
As with all loan products, car title loans carry interest and fees.
You must have an in-depth understanding of what your lender’s charges are so you’re not caught off-guard by the payments you have to make.
Before you take on a car title loan, shop around to find a loan purveyor that carries the best terms. Then, speak to a loan officer on the phone or in-person to get your questions answered.
The more time you put into researching a loan you’re interested in, the better odds you’ll have of avoiding trouble when paying down your balance.
Even the Best Car Title Loans Might Not Be Right for You
Car title loans are generally marketed to people with poor credit histories.
Because of that, many of these loan products carry sub-par terms.
Even if you qualify for the best car title loans, you may find that their offerings pale in comparison to loans that you could get from a bank if you had better credit. That’s why we recommend waiting to rehabilitate your credit before borrowing money, if possible.
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