Do you suddenly find yourself in need of a certain sum of money urgently? You don’t want to sell any of your worldly possessions, and you also know what you need is a loan. Well, if you have a car and the vehicle’s title is in your name, you can actually get a loan using your car as collateral. A car title loan involves giving your physical vehicle title to the lender, who will place a lien on your car, note the car value, in exchange for giving you a certain amount of money as a loan. When the loan amount and interest owed are cleared, the lien is removed and you get back your vehicle title. If, for some reason, you do not pay the amount back in full, or default on the loan, the lender has the right to repossess your car and sell it in order to clear your dues.
Now, there are a number of things you should be aware of should you be planning to go down this path of obtaining car finance loan with the car as collateral. For one, a car title loan is generally best for someone who is looking for a short-term loan. Second, you should expect to be charged a higher rate of interest when compared to other types of loans. This is because the defaulting possibility is deemed greater, and so is the riskiness of lending to someone based on their car title. Thus, lenders in this business tend to charge a higher rate of interest but also, by the same token, ask fewer questions, need less paperwork, and process the loan in a matter of minutes, rather than needing time or lots of discussion or checks done first.
So then, why might someone opt for a loan using their car title, knowing that their car could be repossessed, and that they are paying a higher rate of interest? Well, this option is a good one for someone who has little to no credit history built up, or whose financial history and credit score are bad. Those who offer car title loans do not check credit history, and just use the physical asset, in this case, the car, as the mode of determining the loan amount and person’s eligibility to get the loan. They are also likely to check that the person taking the loan has employment of some sort, to ensure that they have the capability to repay the loan alongside the interest being charged.