Sometimes meeting the strict financial requirements of banks and other more traditional lenders is extremely difficult. If you’re having trouble building your credit score or have no credit history at all, getting a loan from the bank can seem impossible. This is where a car title loan comes in; this type of loan is great for those who are dealing with an emergency and need money quickly or for those who are currently trying to get their financial situation back on track but still need a little extra help.
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What Are Car Title Loans Or Auto Title Loans?
Car or auto title loans are just what the name implies: A loan taken out against the value of your vehicle. They are fairly easy to obtain; lenders don’t usually require a credit history and the loan amount is secured by the vehicle itself. Loans against a car title can usually be obtained in a day or two and they can be a viable short-term solution if you need cash for an emergency.
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How Does A Car Or Auto Title Loan Work?
Car title loans or auto title loans are typically secured short term loans. The borrower must take advantage of the fact that their vehicle is an asset and use it as collateral to secure the loan they need. Loans against a car title are often easier to be approved for because they are secured, this makes it a great option for all credit-constrained individuals. Once the borrower and lender come to an agreement, a lien is placed on the vehicle and is only lifted once the loan is paid off in full.
Find out if you can get a car title loan without a clear title.
What Is A Lien?
The lien is what makes a secured loan, secured. It is a type of security interest that is placed on the vehicle, it’s meant to help ensure that the borrower will, in fact, make their loan payments on time. If the borrower stops making payments on their loan or cannot afford to pay the loan off in full, the lien (which is the vehicle in this case) can legally be repossessed and then sold so that the lender can recoup the cost of the loan.
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How To Apply For A Car Or Auto Title Loan?
A auto title loan is pretty cut and dried. There is usually any number of companies that provide loans against a car title in your town and many now do business online. You simply go in and fill out a short loan application. Although there will be some differences depending on which lender you chose to work with, most will require proof of:
- Your name, address, and phone number
- Valid driver’s license
- Car insurance
- Car registration
- The make, model, and year of the vehicle
- Employment information for the borrower
The loan amount can be as little as $100 in some places and run as high as 75 percent of the KBB resale value of the vehicle in good condition. There can be no outstanding liens or outstanding loans on your vehicle and you may have to surrender your title until the loan is paid off.
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Are There Any Requirements?
Being approved for a car title loan is, generally speaking, easier than being approved for an unsecured loan, but like any other type of loan, there are a few requirements that need to be met.
- Your vehicle must be fully insured before it can act as collateral
- Your vehicle must be no more than 8 years old
- There cannot be any outstanding debt attached to your vehicle
- You must be 18 or older and be in possession of a valid driver’s license
- You must have all the appropriate registration papers for your vehicle
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What If I Have Bad Credit?
If you have a low credit score then a car title loan or auto title loan is probably the easiest way to obtain a loan. Your weak financial profile is offset by the fact that the loan is secured, and as such, your application will appear far less risky to the lending officer who is reviewing your file.
What Are The Benefits Of A Car Title Loan Or Auto Title Loan?
There are several benefits to this type of financing if the borrower doesn’t abuse the option.
- They’re fast. Loan approval can take as little as 15 minutes.
- They’re convenient. You can walk in with your title and get your cash with a minimal amount of hassle.
- They don’t require a down-payment or a credit check. The value of your vehicle allows you to gain access to funding you might not have been able to get approved for before.
- Lower interest rate. Because you’re providing collateral in the form of a vehicle, you’ll often be able to qualify for a lower and more affordable interest rate.
- Still own your car for the duration of the loan and be able to use it just as you did before.
Are There Any Disadvantages to Taking Out A Car Title Loan Or Auto Title Loan?
The disadvantages are less than they used to be since provinces have passed some legislative reforms. Some provinces have placed a cap on the amount of interest a title loan company can charge. There is also legislation as to the maximum loan amount in some jurisdictions, as well as the number of these loans a consumer can take out within a year. The disadvantages mainly have to do with not understanding the terms of the contract, not making payments in a timely manner, or taking on a loan that you can’t realistically afford.
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These disadvantages can be overcome by making sure you read the contract thoroughly and understand the consequences, pay the loan off in the shortest amount of time, and avoiding using this quick and easy financing as a short-term solution to long-term financial problems. The consequences are debt you can’t manage and the loss of your vehicle. If you are in a cash emergency and use this type of financing as it was intended, a car title loan can be a good source of funding. Just make sure to shop around, read the fine print, and pay it back within the allotted time and you should be okay.
Can I get a loan against my car title if I’m still paying off my car loan?
Unfortunately, if you don’t own your vehicle outright you likely won’t be able to get approved for a auto title loan. The main reason for this is because the lender who holds your car loan will be first in line to recover their money if you default on your loan. The lender who holds your title loan will be second and may never get their money back. Most lenders won’t want to take this risk.
What credit score do I need to get approved for a auto title loan?
Ultimately this depends on the lender you choose. But, the good news is that title loans often come with less strict requirements (including credit score limits) because the loan is secured. This means that if your credit score isn’t quite as high as you would like, you can still get approved.
How much money can I borrow with a auto title loan?
This depends on the value of your vehicle, how old it is, and what condition it’s in. In order to get approved for a title loan, you need to own a vehicle that has some value
. If your vehicle meets these requirements, you can typically gain access to anywhere between 25% to 50% of its value. Remember the value of your vehicle is not what you originally paid for it.
Will getting a auto title loan help improve my credit?
If your vehicle title loan provider reports payments to one or both Canadian credit bureaus
, then it can help you work towards improving your credit. But, if they do not report payments, then the loan will have no effect on your credit. If credit improvement is important to you, always make sure you ask your lender if they report payments before signing a contract.
What is the difference between a car loan and a auto title loan?
A car loan is used to purchase a new or used vehicle
, in this case, the vehicle acts as collateral for the loan. Once you’ve completely paid off your car loan, you can then use your vehicle to secure a title loan. The money from a title loan can be used to purchase whatever you need.
A Great Way To Secure The Money You Need
If you’re in need of a loan fast and have been rejected by the bank and other lenders then a vehicle title loan could be the solution you need. Title loans are short-term easy to pay off loans and therefore are a great option when your income is tight but life is still happening. The convenience of a car title loan will allow you to deal with whatever emergency or financial needs you might have right away.
If you’re interested in more information or want to start the process, Loans Canada can help.