What is a title loan and how does it work?


car title loan
(© Vitalii Vodolazskyi – stock.adobe.com)

Have you approached conventional lenders to meet your short term financial needs? Yet, they turned down your loan application because of your bad credit rating? When established sources of funding fail, a title loan is what helps you in unforeseen financial situations. Over the years it has become one of the secured loans all over the world. A title loan allows a borrower to obtain funds by using their car title as collateral. In these sources of credit, the lender takes into account the value and condition of the vehicle. Typically, securities lending companies work with financial institutions that provide borrowers with access to loans. The best part of a title loan is that it saves time compared to other traditional financing options. Most often, the borrower receives an approved sum of the amount in his bank account within 24 hours.

Understanding the pros and cons of a title loan from a borrower’s perspective is essential before you begin. To make it easier for you, we have put together the main advantages and disadvantages of this method of financing:

Benefits of securities lending

  • Auto title loans do not follow cumbersome procedures. All you have to do is fill out an application to apply for the loan. Once done, it is either immediately accepted or accepted later with additional facts and details.
  • Borrowers with bad credit are also eligible to apply for title loans. Typically, lenders are willing to offer loans if your financial statements show that you have a stable source of income.
  • Since the lender puts a lien on the title of the car, the borrower has no restriction in using it. However, if the latter defaults in payment, the lender repossesses the vehicle.
  • It’s an ideal and quick way to meet your short-term financial obligations.

Disadvantages of Securities Lending

  • Usually, securities loans have a high interest rate. But some state laws such as Texas securities lending laws discourage lenders from charging unreasonably high interest rates on the amount borrowed.
  • Failure to meet loan payment deadlines may result in additional fees and reducing charges on top of the loan balance. Thus, it is recommended to gain the trust of the lenders to avoid such situations.

How does a title loan work?

The prerequisite for securities lending is a loan application which includes essential details about the borrower and the vehicle. Along with the application, you need to get the car, proof of identity, pink slips to prove ownership of the car, and other necessary documents like a driver’s license and bill of sale. Once the application is complete in all aspects, it is forwarded to the car loan company. After approval, the agreed amount of money is credited to your bank account. Most lenders get information about your income sources and monthly expenses from your financial statements. If you are self-employed or employed, your chances of applying for loan approval are greater. The amount of money you can borrow depends on the condition and value of your vehicle. Usually, these loans are repaid within 30 days. But there is a concept called loan rollover which allows you to borrow money for an additional month with the prior authorization of the lender. However, repeated renewal of the loan may result in non-payment of the loan amount. This could lead to repossession, which means the lender would repossess the vehicle. Now the lender can sell the car to pay off its outstanding debt.

If you are considering going for this financing option, be sure to find a securities lending company registered and certified under the laws of the state. With a plethora of pawn shops, it is not easy to get one. However, with a little research, you can connect with an auto loan agency that offers you loans as and when you need them.

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