What to Know Before You Obtain a Car Title Loan

Before you obtain a car title loan, you must understand fully what the purpose and benefits of car title loans are. You must also understand what you will be paying back on the loan and how it will be repaid. Finally, it is important to choose a reliable and honest lender that you can trust for your loan.

How Car Title Loans Work

When you take a car title loan, you borrow money and use the equity in your car to secure it. A car title loan lender lends you money based on the value of a vehicle you own (whether that vehicle is a car or some other type of vehicle). This can make it easier to qualify for a car title loan than for many other methods of financing. While a car title loan can be very helpful in many circumstances, you still need to understand exactly what you are getting into before you decide whether a car title loan is right for you.

Understanding Car Title Loans

The first thing to know before getting a car title loan is that this method of financing is not meant to be a long-range solution to budget shortfalls. Car title loans are typically repaid within a few weeks or a few months, although sometimes a lender may be willing to give you several years to repay. The longer the period of time your loan is outstanding, the more interest you will pay. So bearing that fact in mind, to keep amount of interest you pay as low as possible, you will want to arrange to pay ahead of schedule and pay your loan off as early as possible.

You also need to be aware that car title loans may charge you a higher interest rate than many other kinds of loans, such as bank and credit union loans. However, unlike bank loans, you can qualify for a car title loan even if you have bad credit. It is possible to do this because the car title loan is secured by the lender's interest in your vehicle. The lender is protected by holding the title to your vehicle until you pay back the loan, so although you can drive the car after you take the loan, you will lose it if you don't repay according to your agreement.

Because car title loans are easier to qualify for than bank loans, especially if you have bad credit, the higher interest rate is understandable and it can make sense to simply accept and pay that higher interest rate when you urgently need the money. Further, because car title loans provide you with fast approval and allow you to get access to the money you need quickly, a car title loan can actually save you money even with the higher interest rates, if getting the loan helps you to avoid problems or losses that could cost you much more.

Understanding Interest Rates and Repayment Methods

Before taking a car title loan with a particular lender, you should find out exactly what interest rate your lender is going to charge you. Interest is money charged to you for the privilege of borrowing the money. It is always expressed in the loan contract as an annual percentage rate (even if you aren't borrowing money for a full year), but is often talked about and quoted as a percent per month. The higher the interest rate, the more expensive the loan will be over a given period of time.

The amount of interest charged directly impacts what your monthly payments are, as repayment of the loan will require you to both pay back the principle balance and to pay the interest charged on that balance. The length of repayment period of your loan is also going to impact the required payment amount. For instance, if you borrow money and have only two months to pay it back, obviously your payments will be much higher than if you have sixty months to repay. On the other hand, the longer you take to repay your loan, the larger will be the total amount of interest that you wind up paying.

If your lender is not willing to be up front about your interest rate, as well as about any other costs and fees, you need to consider finding a different lender.

Choosing a Lender

Finally, the last thing to be aware of before taking a car title loan is that each lender is different and will have a differing operating styles and levels of customer service. Some lenders will be more informative, helpful and customer service oriented than others. One may coach you on how to keep the cost of borrowing as low as possible, while another may remain silent and hope make much more money by being much less informative. Be aware of that difference and let it guide you to choosing the right lender.

Finding a good lender, just like finding any other good service provider, is probably going to require a few phone calls on your part. You might start by looking for a lender who has a good rating with the Better Business Bureau or who comes highly recommended by friends and family. Otherwise you can simply look online or in the phone book and then make a few calls. Just try to listen and get a sense that the lender you choose is one that is willing to be open, informative and generally as helpful as possible in guiding you through the process. That is the best way to give yourself the best chance of having the best experience with your car title loan.

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