If you’re interested in taking out a personal loan, but don’t quite have the credit score necessary to take out a traditional unsecured loan, one option that is as your disposal if you own a lien-free car is to take out a car title loan.
Car title loans are incredibly popular thanks to the fact that they are quick, easy, and – again – don’t require borrows to have great or even good credit to qualify. But how do they work?
Basically, a car title loans works like any secured loan. A secured loan means that the money that you receive for your loan is tied to the value of something that you currently own. So, when you are looking to take out a title loan, car title lenders will evaluate the value of your car, and determine whether or not your car is lien-free before offering you a loan. Typically, title loans are anywhere between $100 and $5,000 dollars. They can go much higher, however, and many car title lenders advertise loans up to $50,000.
After your car is evaluated and you qualify for a loan, you will be given a payment term in which you have to pay back your loan in full plus the interest you will accrue over the life of the loan. Title loans typically come with very high interest rates with annual percentage rates going as high as 300%.
If it hasn’t already occurred to you, another thing to be aware of when it comes to car title loans is that if you are unable to pay it back within the agreed upon payment term and default on your loan, your lender has the option to repossess your car. In fact, a fairly substantial percentage of title loan borrowers end up seeing their car get repossessed.
Avoiding that unhappy outcome of taking out a car title loan depends both on how responsible you are as a borrower, and how your car title lender operates. So, how do you find the best car title lenders who follow the best practices? It is, of course, impossible to know for sure, but there are a few things to keep an eye out for as you being your search for the company you want to borrow from.
Continue reading to find out what they are.
How long have they been open for business?
This is a good place to start not just for a car title lender, but for any company that you are considering borrowing money from. When you are looking for car title lenders that you can trust to give you a fair loan, a fair rate, and fair terms, it is best to search for companies that have years and years of experience.
This also comes in handy because, if you are like most people who are looking to take out a car title loan, you have never done it before. If you are in the dark when it comes to these loans, it is helpful to have someone who can balance out your ignorance with quite a bit of knowledge.
A long-lived business is also a sign that they are not only good at their jobs, but good at treating customers right. Otherwise, no one would want to work with them!
What are their interest rates?
In the end, this might be the most important factor when it comes to any loan, not just car title lenders. Even if you are working with the most experienced company in the industry, if their interest rates are far too high, it may be wise to look elsewhere. The average interest rate in car title loans is around 25%. That is already very high, so if you can get anywhere lower, you should really consider it.
In the end, the interest rate of your car title loan will dictate how much your loan will cost you. Even a single percentage point can make a big difference depending on how large your loan is, so keep an eye on this from the very jump!
Are they flexible?
This is another thing to feel out as you begin narrowing down which companies you would like to work with. A car title lender should want to work with you, not against you. They should be willing to make things work for you, within reason obviously, and should not seem dead set on terms that will make it hard for you to pay back your loan.
In the end, the ideal outcome of a car title loan should be for you to take out your loan and pay it back in full by the end of your payment term. If that means extending the term, or perhaps even partially lowering the interest rate, your lender should at least seem willing to consider it.
What are their ‘hidden’ fees?
Lenders of all kinds often have hidden fees within their loans that add to the overall cost of the loan and that is no different for car title lenders. They should, however, become much less hidden when and if you ask about them. So, if you do ask about the hidden fees or to get a quote of the full cost of a given loan, and your potential lender gives you push-back, you should probably consider seeking out different company to borrow from.
What are the customer testimonials like?
This is a great place to get a feel for how past customers feel about the car title lenders you are considering borrowing from. The best lenders will often feature testimonials right on their site as proof of positive past loans they have offered. If they do not offer testimonials on their site, you should be able to find them easily by going to one of the many business review sites online. Beyond that, if you find yourself having trouble finding testimonials of any kind online, it might be a sign that either the company is too new to be truly trustworthy, or that they are hiding something about their business dealings that you would be wise to stay away from.