Title Loans: What You Need to Know
We understand that life can throw unexpected financial curveballs your way. When you’re in a pinch and need a hand, you might consider a title loan as a potential solution. how they work, and the alternatives available to you.
What Are Title Loans?
Title loans, also known as Title Cash Out loans or car title loans, are loans that use your vehicle and its equity as collateral. If you own a car, truck, or motorcycle and have a clear and clean title (meaning you don’t owe money on it), you can use that title to secure a loan. These loans are typically offered by many financial institutions and can be a viable and quick alternative for receiving funds.
How Do Title Loans Work?
Here’s a simple breakdown of how title loans operate:
- Application: You can apply for a title loan by providing your vehicle’s title, registration, current mileage, proof of identity, and sometimes proof of income.
- Assessment: We’ll assess the NADA (National Automobile Dealers Association) valuation of your vehicle and determine the loan amount you’re eligible for. Lenders could offer you up to 100% of your car’s value. Extended Loan to Value (LTV%), can have an effect on the interest rate offered.
- Terms: Title loans can vary in terms (12-84 months) and can be a lower percentage rate compared to unsecured or variable rate loans. Title loans will have a 30-day pay cycle. Extended terms can have an effect on the interest rate offered.
- Collateral: A good rule of thumb for title loans is to keep the collateral within 10 years at the time of underwriting. Consideration of the collateral being reviewed can vary given the specifics of the said collateral. Increased ages on collateral, can have an effect on the interest rate offered.
- Costs: Title loans come with locked and generally lower interest rates (compared to personal loans and credit cards) and minimal fees. Which can make it an advantageous lending alternative for borrowers and lenders alike.
Consider Riskier Alternatives
Rather than exploring the title loan options, there are riskier alternatives:
- Personal Loans: Can come with a higher interest rate and can also incur additional fees. Both of these can push up the monthly payments and demands on monthly income/finances.
- Emergency Funds: Many borrowers consider using emergency funds to avoid immediate financial crises. However, exhausting savings, IRAs, 401K’s can come with monetary penalties and could present financial risks later in life.
- Community Resources: Explore local community resources and nonprofit organizations that may provide assistance during tough times. Our partner, GreenPath, has a variety of programs you may be able to take advantage of. At Zing, we offer one-on-one financial coaching sessions, if interested, please request an appointment.
Title loans are a quick and safer alternative to riskier variable and high-interest rate options, offered by specialized lenders. At Zing Credit Union, we encourage you to explore our Title Loan alternatives to meet your financial needs. We’re here to help you with all consumer loan options and financial guidance to ensure you make the best choices for your financial well-being. Remember, it’s always best to plan, build an emergency fund, and seek out alternatives to avoid high-cost loans whenever possible. Zing Credit Union can be your navigator on your financial journey.