Unfortunately, there may be a time when you are in desperate need of cash. In some situations, you may not know where to turn if you need that extra money. This is especially true if you have bad credit, which can prevent you from qualifying for traditional short-term loans or a line of credit. One of the easiest ways to get fast money without a credit check is a car title loan. It’s important to know how this works to get a better understanding of the benefits of using a loan against car title.
What is a Car Title Loan?
Generally, there are two types of loans related to your car. Those are car title loans and auto equity loans. A car title loan is a type of loan that is backed by collateral, typically your car’s title. If you default on paying back the loan, the lender can legally repossess your vehicle.
With a car title loan, the lender evaluates the price of your vehicle by looking at the wholesale amount. Then, they give you a loan based on what they consider your car to be worth. The lender holds onto your vehicle’s title until you pay back the loan. The loan is short-term in nature and carries a high interest rate, which makes it risky.
An auto equity loan is similar to a home equity loan. However, with it, you use the value of your car to acquire a loan and must pay interest when you pay it back.
Just like with a car title loan, there is a risk if you fail to repay an auto equity loan. If you default on payments, the lender can repossess your car. As a result of the risk, it’s best to limit taking out this type of loan only when you are desperate for cash in an emergency situation.
Who Can Qualify for Car Title Loans?
These types of loans are based on the equity you have built up in your vehicle, which means that to qualify for a car title loan or auto equity loan, you would have to outrightly own the vehicle. If you are still paying off your vehicle, you would not qualify for the loan because you would not be able to use the car as collateral. Other than this, to qualify for these loans, you have to prove your age, residence and income.
Benefits of Borrowing Against Your Car
Borrowing against your car means you won’t have to be subjected to a credit check. This can benefit you when your credit is less than perfect. You can also borrow money faster than when you take out a traditional loan and can borrow an amount up to the fair market value of your vehicle.
Alternatives to Car Title Loans
You should only get a car title loan when you are absolutely desperate for fast cash and have exhausted all other options for getting a loan. It’s worth noting that there are other options available that carry less risk. They include the following:
- Personal loans: A personal loan can be acquired at your bank or credit union. These loans tend to carry lower interest rates and longer terms for repayment.
- Credit cards: Although using a credit card can land you in debt when used unwisely, you don’t risk your property being repossessed.
- Payday loans: Although payday loans carry high interest rates, you don’t have to put up property as collateral.
- Payment extensions: If you think you might not be able to pay certain bills on time, ask for a payment extension.
It is imperative to do your research when you are considering borrowing against your car. If you feel less than confident that you could pay back money you borrow on it, a car title loan might be a good option for you.
Featured Image Source: Flickr