A car title loan is a type of loan where the car (its title) is used as collateral. According to The Net Lender it’s issued by the DMV (Department of Motor Vehicles), the title contains the current owners name and address, make and model of the car, year of manufacture, and the date to which the vehicle was first sold. Should the first owner choose to sell the car, he/she then transfers ownership to the new owner, with the now new owner getting a new title under his/her name from the DMV.
A car title loan from The Net Lender can, therefore, be termed as the certificate of ownership of the vehicle. If the car is used as collateral for a loan, then the lender can use the title to claim ownership or even sell the car if the borrower defaults the loan. Some lenders will also ask for a duplicate key of the vehicle together with the title before processing the loan application. For this reason, this type of loan is mostly preferred by people in desperate need of instant financing and those with no or bad credit history. The lender can however only provide funding of up to 50% of the vehicle’s market value. This way, they are assured of recovering the entire amount, plus the interest, after selling the car. While the amount involved may be substantial, car title loans are considered short-term, hence should be repaid within 30 days. The lenders are unregulated and mostly non-bank financial institutions.
- No need to worry about credit history or rating
You never have to worry about your credit history with a car title loan. With the car as the collateral, you can borrow as much as 50% of its market value according to The Net Lender.
- Short term loans:
Car title loans. Such as those from The Net Lender, are very flexible. You can borrow any amount, which can be used however you wish. This is unlike bank loans whereby you cannot borrow less than $1000.
With the rise of car title loans in the market, many states have passed laws to prevent predatory lending practices by some lenders. The high APR rate is another matter of concern, with most states imposing an interest rate cap for the same. All this is aimed at making these loans more manageable.
- High-Interest Rates
According to the Center for Responsible Lending and the Consumer Federation of America, consumers should avoid going for car title loans for financing. This is because such loans come with ridiculously high interest rates, with only the lender benefiting from it all whether the borrower repays or defaults. Such high-interest rates lead to an endless cycle of debt for the consumer. Data released by these two bodies show that debtors get to pay at least 25% in interests per month on car title loans, a figure that equates to 300% Annual Percentage Rate. Although individuals with bad or no credit find such loans attractive, the interest rates charged are much higher than the most expensive credit card company.
- Risk of losing the car and equity on the same
Should you be unable to pay the loan on time, the lender gets to pocket both the amount he/she would have gotten back and the equity as well. You don’t even have a right to claim the equity that rightfully belongs to you.
- Rollovers and Fees
Some fees come bundled with the car loan. For instance, you may have to pay for late fees, document fees, processing fees, lien fees, and origination fees, all which only benefit the lender. Some lenders will even include roadside assistance fees in the package. Should you be unable to repay the loan on time, it then means you will have to foot for all these fees.
However, there are many positive reasons for a car title loan from The Net Lender as you can see above.