Title Loans: Financial Help or Hindrance?

Loans: Financial Help or Hindrance
Title loans are offered by financial institutions or finance companies to consumers in exchange for vehicle titles as collateral. These loans are short term and demand payment within 14 to 31 days. Lenders may have different agreements and terms, including application processes, fees, interest rates and due dates. Although the loans are helpful during events of emergencies or the need for extra cash, it can become a hindrance if not repaid by the due date. There are advantages and disadvantages of obtaining short term loans.

Reasons Consumers may Request a Title Loan

Consumers request for title loans for many reasons, including emergency, vacationing, pay off debt, and college tuition. The consumer may be having hardship financially and needs the extra cash to cover other expenses.

Lender Requirements for Obtaining Title Loans

Lenders typically have similar requirements for consumers to receive title loans. The loan process begins with the consumer completing an application online or in-store. The requirements are minimum, which includes proof of employment, valid state driver’s license or state issued ID, and vehicle ownership title. To prove employment status, the consumer is required to supply a recent paycheck stub to the lender. After the application is approved and requirements are met, the lender requests an inspection of the collateral to see if there are any damages.

Title Loan Application Process

The application process for a title loan includes providing information, such as name, date of birth, address, social security number, place of employment, references, and loan amount request. Most companies and financial institutions offering title loans are required to provide information to consumers regarding the terms in writing. The term agreement must provide information concerning applicable fees, interest rates, and late fees. Additional information includes the default of title loans.

How Loan Amount is Determined?

Lenders determine the loan amount based on the value of a vehicle. Loans may range from $100 up to $40,000, based on the blue book value. Lenders request to ensure the vehicle used for collateral is operable and to see if there are damages in the exterior and interior.

Advantages of Title Loans

There are benefits of title loans if the borrower is financially capable of repayment by the due date. Most consumers live on a set budget according their financial means and income. To make the loan advantageous, consumers must consider the timeline for repayment and budget appropriately to ensure the obligation of repayment is fulfilled by the terms of agreement.

Title loans are fast to process and consumers may have access to cash within 10 to 15 minutes. There is no credit checks imposed on consumers to qualify for loans, which is prevalent among title loan lenders. Collateral replaces the no credit check, and the consumer is allowed full access to the collateral after the loan is issued.

Disadvantages of Title Loans

Consumers are advised by the U.S. Federal Trade Commission to seek other alternatives to receive loans. Title loans can be costly if consumers do not repay by the due date. The fees and interest rates may double each due date period the loan is defaulted. For an example, if a consumer receives a loan for $100 and the fee and interest rate is $25, the total amount due at the end of 14 days is $125.

Now, if the borrower is unable to repay and has to renew the loan, another $25 is added to the loan. The total amount the borrower is obligate to pay is $150. The fees are doubled and is half the principle amount original borrowed from the lender. The additional fees may cause financial distress and result in repossession of vehicle collateral. If the auto is repossessed, the borrower is given a timeline to pay off the loan, plus fees and interest.

Title loans have their benefits, but have serious disadvantages if not paid by the due date. Consumers are advised to repay the loans by the term agreement to avoid financial burdens.

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