Tuesday, March 21, 2017

What's the Difference Between a Bank Loan and a Title Loan?

Many people experience a situation in which they need cash to make a purchase, but they do not have enough on hand. 

A bank loan or title loan can be used to generate an influx of cash for a situation such as a home repair or payment of a medical bill. 

There are some important differences between bank loans and title loans that you should understand before signing your name on the dotted line.

Bank Loan Requirements

Bank loans are provided by a lending institution that must operate under the terms of federal laws for interest rates and other loan terms. 

In order to get a bank loan, you may have to provide proof of your ability to repay the loan. This would come from copies of your pay stubs. If your income is low, you may need to have a co-signer. 

The bank will also check your credit score. A low credit score can mean a high interest rate.

Prerequisites for Bank Loans

Banks will scrutinize your finances and calculate your income to debt ratio before agreeing to a loan. 

The bank loan can be secured, such as with a mortgage. In a secured loan like a mortgage, the deed to your house would go to the bank if you fail to pay. In an unsecured loan, the bank is taking a gamble on your personal finances. 

The interest rate for an unsecured bank loan is usually higher than the interest for a secured loan.

Title Loan Terms

The terms of a title loan are different from a bank loan. With a title loan, the title to a piece of property owned by you secures the cash that is loaned to you. 

For example, you could put up the title of your car. If you fail to repay the loan, the lender gets the title of your vehicle. To get a title loan, you must own the property free and clear. 

Some companies, like American Cash Advance and Title Loan, know that the property cannot have any liens on it. Title loans also come with interest fees, which can be tied to your credit score.

Before taking out a loan, be sure to read all of the fine print. You will need to know the terms of the loan, such as payment schedules and what could happen if you miss even one payment. 

Understanding how these loans work will help you to make the best financial choice for your situation.

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