Understanding How a Car Title Loan Works

A car title loan is an easy-to-get financial product that is differentiated from other forms of short-term lending, such as payday loans, by the larger amounts that may be lent. Like a payday loan, it is a device that is designed to be paid back quickly and to not punish, but rather to reward, those borrowers who do pay them back in short order. They are income and collateral based, which allows them to be offered without many of the complications and exclusive elements that accompany applying for other types of lending.

A car title loan is based principally on collateral. This means the borrower puts up something of a definite value as an assurance to the lender that they'll pay back the loan. As the name implies, the borrower puts up their car title as collateral for this type of loan. The borrower does not have to give up their car, the lender simply uses a lien against the title as a means of ensuring the safety of the loan. In order for one to be able to do this, they must be in possession of what's called a "clean" title.

A car title loan company uses the term "clean" to refer to a title that meets the following conditions. It must not have any liens already written against it. This prevents borrowers from getting a title loan from one vendor and simply driving down to the next title loan establishment to get another. The vehicle must be owned outright. This means there can be no financial arrangements relevant to the vehicle at the time at which the loan is taken out. Obviously, the borrower cannot offer as collateral something which they do not truly own. Of course, the borrower must have clear ownership of the vehicle, being listed on the title and registration. Any additional parties listed must also agree to the loan.

The car title loan model allows much larger sums to be lent out than do the unsecured forms of short-term lending such as payday loans. The actual amount of the loan will be dependent upon the state and local regulations under which the lender does business as well as the lender's own policies regarding the individual's income and the amount they're willing to lend. In most states, the lender may offer as much as 50% of the total title value of the car; sometimes more, sometimes less. One must check with lenders in their area to determine what the state regulators allow or check directly on their state government's site.

The car title loan is usually awarded on the spot following an inspection of the vehicle. This means, of course, that even loans for which one applies online must, at some point, involve a drive down to the lender. Of course, make certain that the online lender has an inspection facility near enough one's home to make the whole affair convenient and practical. The inspection will make sure the auto is in good working order and that everything is as described on the title.

The car title loan is usually available by cash, check or direct deposit into the borrower's bank account. Because these loans are usually substantially larger than those made by regular payday lenders, the direct deposit is generally a good choice but will, of course, be available dependent upon the bank's specific policies. If an emergency debt is being paid with the money, the cash may be the most-preferable option to take, if only for reasons of simple convenience.

The car title loan will, in most cases, accrue interest daily. Most often, the fees that this generates can be paid at the outset so that the amount financed only need be paid back at the end of the term. Of course, one may leave these fees to be paid with the final payment, as well. These loans can sometimes be refinanced, sometimes not. This, again, will depend upon the regulations applicable to one's state and local jurisdiction. One should definitely investigate this before taking the loan to make sure they can make the financial product work out for them in the most convenient way possible.

Once the car title loan is paid off, it's simply gone for good. The lien is removed from the vehicle title and the lender goes along on their way relieved of the debt in full. Among the types of fast cash available, these loans are very easy to understand and don't entail a lot of fine print when they're taken out. It's about as straightforward and understandable as a lending arrangement can be and, thus, this sort of arrangement is becoming increasingly popular, especially as traditional sources of credit become ever more restrictive in their methods and less amicable to new customers.