Car Title Loans are a fast and easy way to borrow money using the equity in your vehicle. It is important to note that car title loans are not the right choice for everyone. Generally, they are an expensive form of credit used for short term funding emergencies.
For a title loan to be a good choice, it will need to solve your short term financial problem.
Additionally, you must be a good candidate for a title loan. Many lenders will lend to anyone and encourage borrowing the maximum amount you qualify for.
This can be a recipe for disaster and prior to signing a loan agreement it is critical to make sure your title loan is affordable to you. Generally, it is a good idea to borrow only what you need. You should also make sure you are a good candidate for a title loan.
What makes a good title loan candidate?
A title loan is meant to be a solution to a short term financial problem. This is true only if you make a good candidate for a title loan. For others, who do not make good candidates, title loans can end up being the start of longer term financial problems and a loan that is very difficult to repay.
This is especially true if you try to make a car title loan a long term loan. When amortizing a high interest loan extending the repayment period drastically increases to finance charges. This is illustrated in the graphs in a recent post about the true cost of these loans. Understanding this helps to make title loans solutions, not problems.
To be a good candidate for a title loan, you will need to meet some criteria related to the loan amount, loan term, the vehicle, and your ability to repay the loan. Generally, you can borrow up to 50% of your vehicle’s fair market value.
Use one of the online valuation tools like KBB or NADA to get an idea of your vehicle’s value. Then, use the car title loan calculator to get an idea of different loan terms and monthly payment amounts.
Title Loan Amount and Term
As discussed, title loans are meant to be short term loans. Deciding if one is right can depend on the length of the loan. If you need an long term loan, you are not a good candidate for a title loan.
- Loan Term – Title Loans are meant to be short term loans. They have high interest rates, therefore you should keep he loan term as short as possible. Anything over 12 months will be very expensive. Anything over 24 months will be excessive and is not advisable. When you try to make a title loan a long term loan the costs increase significantly.
- Loan Amount – The loan amount should cover your immediate financial need and result in a payment you can afford. An affordable title loan is essential as a default can result in repossession.
If you find a loan amount that meets your financial need, and results in a monthly payment you can afford, with a term of less than 24 months, you may be a good candidate for a title loan. If not, you should look for an alternative.
Vehicle to Support the Title Loan
The next step to determining if you are a good title loan candidate involves the vehicle. The vehicle will need to be owned free and clear with a lien free title. It is possible to get a title loan on a vehicle while still making payments if you are close to paying the vehicle off.
Additionally, the vehicle will need to have a fair market value to support the loan amount needed to satisfy your short term financial need.
Car title loans usually have a maximum loan amount of 50% of the vehicle’s value, so to support the loan, the vehicle will need to be worth at least twice the loan amount.
For example, if you need a $2,500 title loan, the vehicle will need to be worth at least $5,000. If you need a $5,000 title loan, the vehicle will need to be worth at least $10,000. If the vehicle value does not support the amount you need to borrow to solve your short term financial problem, you may not be a good candidate for a title loan.
Income for Repayment
Finally, to be a good candidate for a title loan, you will need a reliable source of income to repay the loan. Income can be from any source. Typically it is income from a job, but can also be any of the following:
- Pension payments
- 1099 Income
- 401k distributions
- A tax refund
- Annuity payments
- Any other reliable source
The income needs to support the loan. If it is a monthly payment loan, you will need to have reliable monthly income for the loan term. If it is a one time payment like a tax refund, the amount needs to be able to cover the full loan amount plus interest and fees.
You can get a title loan with no income verification if you do own the vehicle and have a means of repaying the loan. These cases are not as common, but still happen.
Is the Title Loan worth it?
After determining that you are a good candidate for a car title loan, the next step is to figure out if it is worth it. In other words, does the benefit received from the loan outweigh the cost? This is often easier to determine when the loan is for something you can place a monetary value on.
Make sure the benefit of the quick loan outweighs the cost of repaying the loan. If it does, then it makes sense to proceed. If not, then look for an alternative.
If you meet all of the criteria and make a good title loan candidate, the next step is finding a title lender and applying for the loan. Fast Title Lenders offers competitive rate title loans with an easy online application.
Car Title Loan Payments
If you decide to move forward with a car title loan make sure to find out how to make your payments. If you chose an online title loan you may be able to make your payments online as well which is convenient. If not, set up a reminder to make sure your payments are on time.
Defaulting on a car title loan can result in repossession, so it is critical to make your payments on time. If you know a payment will be late, contact your lender and let them know.
Car title loans are a good choice for some and not so good for others. Whether or not a car title loan is the right choice for you depends on your specific situation. Even the best car title loans are expensive. Always make sure the benefits received from the loan outweigh the cost of repayment.
Finally, make your payments on time or early. One way to save on a title loan is to make early payments and pay more than the minimum each month. This will reduce the total interest and therefor total cost.