Saturday, January 11, 2014

5 Things to Consider Before Applying for a Car Title Loan

Car Title Loan Reflection
Car Title Loan Reflection (Photo credit: Jeremy Brooks)
While your car may not precisely be deemed an asset because of how quickly it loses value, it does have some amount of value as collateral, so long as it's in good, running condition. And this means you can use it to secure a car title loan, whereby you can get the money you need (or a portion of it, at least) based on the estimated value of your vehicle, amongst other criteria. 

Of course, you will have to hold your car title (as in, own it outright), you'll probably need full coverage insurance, you'll need to provide proof of employment, and you might even have to offer references (and deal with the embarrassment of having a car title lender calling your family and friends). 

But once you've filled out a mound of paperwork you're all set, supposing you pass the background checks. The thing is, unless you're really desperate for cash and you'll find yourself in dire straits without it, a car title loan may not be your best option due to the astronomical interest rates you'll end up paying and the fact that your car will be seized should you fail to pay in a timely manner. 

Here are just a few things you'll want to consider before you sign on the dotted line.

1. Why you want the money. This is important. If you are so strapped for cash that you're going to, say, lose your home if you're unable to pay the mortgage, then virtually trading in your car for your house (at least temporarily) could allow you to stay in your home until your ship comes in. But if you're using the money to take a vacation, buy holiday gifts, or otherwise spend on things you simply don't need, you should check yourself and take a long, hard look at your choices. Living beyond your means is going to catch up to you eventually, and the result, if you get a car title loan for unnecessary expenditures, could be that you end up losing your car.

2. Your credit score. Car title loans are generally reserved for those who don't have the option of opening a home equity line, taking out a personal loan from the bank, or otherwise securing the funds they need. Unfortunately, the fact that you've exhausted other options doesn't mean you're going to get a car title loan without a decent credit rating. If you pose too great a risk where repayment is concerned, you're simply not going to qualify, even with your car as collateral.

3. The value of your car. If your car is more than a few years old, damaged, or undesirable in some way that has depreciated the value, your chances of getting a car title loan are probably pretty slim. The main thing required for this type of collateral is value, and this is generally based on the Kelley Blue Book estimate, as well as a visual inspection by the lender. And don't expect to get more than half the agreed-upon value of your car when you take out this type of loan (as it will continue to depreciate while you pay off the amount borrowed).

4. Alternative options. There are all kinds of alternatives to taking out a car title loan, such as borrowing from family members, opening a home equity line, selling valuables, or perhaps even applying for a personal loan. So before you put your car up as collateral and agree to pay an exorbitant interest rate, try absolutely every other avenue available to you.

5. Comparison shopping. If you've decided that a car title loan is the only feasible option for getting the money you desperately need, it's important to comparison shop in order to ensure you get the most money, the lowest interest rate, and the best terms overall. In case you didn't know, there are many lenders to choose from, and you can get a title loan online, as well. You're the one who will have to pay, so make sure you do your homework and find the best possible deal.


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