If you’re looking to get a title loan, you need to be prepared for everything. From underwriting to the loan terms, it can be tough to know precisely what you need to know to get the best deal.
Obtaining a Title Loan – The Basics
A title loan is a type of short-term personal loan with flexible terms. It’s commonly used for emergency financial situations, such as car repairs or unexpected medical bills. For these types of loans, the borrower uses their car title as collateral.
These types of loans are also more common in areas where other types of traditional lenders may not provide the loan amount requested.
In this post, we’ll go over what you need to know about getting a title loan and the best way to get approved for one quickly.
How to Underwrite a Title Loan
One of the most important decisions you will make when considering a title loan is underwriting. You need to know how much you can borrow and what your collateral is worth.
If your title is in good condition, it is typically worth around $42,000 – $44,000. To calculate what your car might be worth, you’ll need to find out its average trade-in value on sites like Kelley Blue Book.
Additionally, if you have any liens against the car, it may not be worth as much as an unencumbered vehicle.
Before applying for a title loan, check with your lender about the current market value of your car so that you can adequately underwrite and understand the terms of the loan.
The Types of Title Loans
Title loans are secured loans against the title or lien of a car. They are used for short-term cash needs, like emergency bills and vehicle repairs.
There are two types of title loans: secured and unsecured. The difference is that you don’t give the lender any collateral in exchange for the loan with an unsecured loan (like a car).
With a secured loan, you provide collateral in exchange for the loan. For example, you could have your bank or vehicle title as collateral instead of giving your car as collateral.
Another difference between secured and unsecured loans is that you don’t need to pay interest on it, while with a secured loan, you will have to pay monthly interest on the amount owed until it is repaidOften customers get confused by these terms because they’re often used interchangeably in conversations about title loans.
The Terms of a Title Loan
The terms of a title loan are significant, so you’re going to want to make sure you know the basics. Below is a list of the most important terms you should be familiar with before getting a title loan.
Fees and Taxes
It’s important to note that there are two types of fees associated with title loans: the loan origination fee and the monthly servicing fee.
The purpose of the loan origination fee is to cover the costs of underwriting your loan, including third-party verification of your income and assets, credit checks, collections, and other steps. The interest rate for this type of loan is variable but typically starts at 1 percent.
The monthly servicing fee is a flat fee designed to cover the costs associated with managing your loan. These fees vary by state and can be as low as $1 or as high as $30 per month. Therefore, it’s essential to shop around for a lender to find out what you will pay on a title loan.
Time Frame for title Loans
The time frame for getting a title loan can vary depending on the lender. It takes around 24 hours to get a loan most of the time. However, some lenders may take a week or two to approve your application.
This is because a lender needs to do more underwriting and research to make sure you’re suitable for the loan.
The last thing they want is for someone with bad credit to get a loan and not be able to pay it back. That’s why it’s essential to find out what your options are before going into your local bank or lending institution.
To find out if your local lender offers title loans, call them up and ask them about their interest rates, term lengths, and other lending options that they offer, like payday loans or overdraft protection loans.
Interest Rates and Length of the Loan
Title loans are short-term loans that can range from a few weeks to several months. The length of the loan will depend on your credit score and other factors, so you must understand what your options are.
Interest rates on loans typically start at 30 percent, but they can reach up to 60 percent based on your credit score and other factors. This means you could end up paying $600 for a $500 loan if you fail to pay back the loan in time.
The interest rates you pay will depend on how much money you borrow and the loan length. However, it’s important to note that interest rates are not fixed for different borrowers because lenders use risk analysis software when underwriting a title loan.
Conclusion
Title loans are an alternative to traditional loans, as they allow you to borrow money without having to put up collateral. If you’re considering a title loan for any reason, think about the risks and benefits before you start the process.
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