Making the decision to get a car title loan is often a difficult one. Just needing a title loan in the first place can be a difficult and stressful position to be in.
This is why we recommend making sure you are a good candidate before getting a car title loan; not everyone who simply meets the requirements is necessarily a good candidate. This can be for a number of reasons.
Title Loans are not for Everyone
Despite what some lenders may want you to believe, car title loans are not the answer to every financial problem. They should not be used for random unnecessary purchases just because they are available. Likewise, despite what other credit sources want you to believe, not all title loans are bad.
Just like any other type of loan or credit source car title loans need to be used wisely and for the right reasons. This includes using them for situations where you make a good candidate for the loan and when the loan will solve a short term financial problem.
To be a good car title loan candidate the loan needs to be worth it to be a good decision. We suggest performing a cost benefit analysis to make sure the loan benefit outweighs the cost. If it doesn’t, it is probably not worth it.
The best title loan companies tell people when a vehicle title loan is not the right choice. For many customers title loans are not the answer, and, in some cases, can even become a problem instead of a solution.
This is especially true when the loan is not affordable. Getting a loan that cannot be repaid is not a good decision, especially when you are using your vehicle as collateral.
What makes a Good Title Loan Candidate?
What does it take to be a good title loan candidate? The answer is there are criteria that borrowers should analyze to help determine whether or not the loan make sense.
We go over these in detail in the following sections. These criteria include:
- Loan Amount
- Vehicle Value
- Repayment ability
- Title Loan Requirements
Before moving forward with a car title loan make sure it will improve your financial situation. Remember, car title loans are not long term solutions.
It is important to note that car title loans are meant to be short term solutions. Trying to make a title loan a long term solution can result in a very expensive and costly repayment schedule. This can turn a small financial problem into a larger one.
Criteria for Title Loan Candidates
There are several criteria that should align to borrower’s requirements before proceeding with a car title loan. Examine each and make sure you are a good candidate by meeting the following criteria.
1. Car Title Loan Amount
The car title loan amount needs to accomplish, at a minimum, two things:
- Cover the expense that led to needing the title loan; and
- Result in a loan with a monthly payment you can afford.
If the title loan amount does not cover the expense you need the loan for; you may not be a good title loan candidate. Additionally, if the loan does not result in a monthly payment you can afford, then a title loan may not be the right choice.
To get an idea of different payments for different loan amounts and terms, use the car title loan calculator. If you find a loan amount that meets your needs, with a payment you can afford, you may be a good candidate for a title loan.
If the amount is small (less than $500), then a Payday Loan or Payday Alternative Loan may be an option. These loans have the advantage of not requiring the vehicle as collateral.
Many car title lenders limit title loans to $10,000.00. If the loan amount is more than this, you may want to look into an alternative or find a lender with no pre-set limit.
2. Vehicle Value
The vehicle value needs to support the loan amount from the previous step. Usually title loans are limited to 50% of the vehicle’s fair market value. So, to be a good title loan candidate, your vehicle should be worth at least twice the loan amount needed.
To get an idea of your vehicle’s value perform an appraisal and use one of the online valuation tools like KBB or NADA. The vehicle can be a car, truck, SUV, and even motorcycle title loans are available in some cases.
If the loan amount needed to cover your expense is $4,000.00, then you will need a vehicle worth at least $8,000.00. You are probably not a good title loan candidate if your vehicle is not worth enough to cover the loan amount.
3. Repayment Ability
You will need some way to repay the loan. Losing your car, truck, or motorcycle is a possibility, so the ability to repay the loan is important. If you have any doubt about your ability make your payments then consider other alternatives.
Funds to repay the title loan can come from any source; even the vehicle itself. This makes it possible to get a title loan without income verification if necessary. If you have no way to repay the title loan, then you are not a good candidate.
4. Title Loan Requirements
Finally, to be a good car title loan candidate you will need to meet the online title loan requirements. These include a vehicle with equity, lien free title, drivers license, proof of insurance, and vehicle pictures.
If you cannot meet the title loan requirements, then you are not a good title loan candidate.
Title Loan Candidate Checklist
You can use the following checklist to help determine whether or not you make a good candidate for a car title loan. Remember, title loans are meant to be short term solutions. The goal is to avoid getting a title loan and having it cause a long term financial problem.
|Vehicle Value Supports Loan?|
Loan Results in Affordable Monthly Payment?
|Vehicle is worth 2x Loan Amount?|
Vehicle has no Liens?
|You have ability to repay?|
The Loan is Affordable?
|Title Loan Requirements:|
|You meet the requirements?|
Finding out whether if you are a good candidate will help avoid getting stuck with a loan you can’t afford.
Title Loans versus Title Pawns
As we’ve mentioned car title loans are different in every state and not all states permit them. Some states have what are called title pawns, very short term loans with a single payment due at the end of the loan term.
Other states have monthly installment title loans that span over several months. These are becoming more available and help avoid the excessive costs associated with roll overs.
The fact that each state is different means a title loan in Florida is very different from one in Texas or California. Another consideration when determine candidacy is whether or not to consider an online title loan. Make sure to understand the different title loan interest rates.
Online Title Loan versus In-Person
Another consideration is whether or not an online title loan is needed or an in-person title loan. One factor to determine is if you need a title loan completely online with no inspection and no credit check. These loans are completed 100% online without a store visit.
To be a good candidate for an online title loan you will need to be able to take vehicle pictures and upload all information as part of the loan process. This is what some companies refer to as instant online title loans and are often funded by direct deposit.
A benefit of a online title loan is the ability to apply for the loan without having to be located near the lender. This provides more options for finding an online title loan.
In-Person Title Loans
In-person title loans on the other hand do require a visit to a lender. There are some benefits to these loans including funding the day you visit the lender.
To be a good candidate for an in-person loan you will need to have a title loan company near you that offers reasonable rates.
Even the cheapest title loans with the lowest rates can be costly, especially when compared to other loans. To determine if a title loan is the right choice, weigh the costs versus the benefits.
Benefits should always outweigh the costs to be a good decision. Make sure you are a good candidate for a title loan and that your financial situation will improve.
Online title loans are not long term financial solutions. Make sure the total cost of the loan is reasonable. Always read the loan agreement in full before signing and be sure you understand all fees and costs.