Some of the lenders who offer auto title loans recommend that those who consider using them give much thought to the matter. This is pretty indicative that a risky transaction is going to take place and auto title loans are not suitable for many. Those who consider applying for an auto title loan really do need to understand the product and the likely loss of their vehicle if they cannot meet the very high interest payments on the loan.
With a standard secured car loan the car owner risks repossession of the vehicle if the payments are not met, but the borrower is still paying for the car and thus stands to lose far less than someone who borrows against a vehicle which is already paid for in full. Those who use auto title loans own the vehicle outright and use their auto title as security for the loan.
Auto title loans can be applied for to cover emergency funding and repaid in a short period, but increasingly longer loan terms are being offered, with a choice of interest only loans or interest and principal repaid together. If an interest only auto title loan is granted then these tend to be for a shorter period such as 90 days, but can usually be extended if the borrower has made all the payments in timely fashion. The full value of the loan is still owed and this type of loan can be a very expensive way of obtaining finance. If the interest and principal are amortized then longer loan terms may be extended but be careful that no pre payment penalties apply in case you are able to pay the loan off earlier than estimated.
Applications for auto title loans can be made online. Usually no credit check is required and those with bad credit are able to obtain auto title loans. The borrower will need a clear vehicle title, identification, proof of income, proof of auto insurance and proof of residence.
Generally before the loan is approved the lender may wish to inspect the vehicle and take possession of a key. The borrower must provide proof of insurance and in some cases the lender will need to be added as the policy loss payee. It all depends on the size of the loan and the repayment terms. When loans are extended over time the lender may apply strict criterion to the security.
If the borrower defaults on the terms of the loan then the lender claims the vehicle. In some cases the lender may repay the borrower a portion of the cars value when the loan is cleared, or they may not, depending on the individual state laws. It is rare that an auto title loan lender publishes the APR before an application is made, and the individual should be very wary of the high APR’s imposed on such loans.
The loans are basically over secured in most cases, which means that if the borrower defaults they stand to lose the full value of their vehicle. Default is a possibility as the loan repayments will be high, and only those in desperate need of a loan would use this method of borrowing are likely to be already experiencing financial difficulties. For those who do need an immediate cash injection the loans can be easily and quickly arranged but the risks are high.