Are you one of the 80 percent of American workers who are living paycheck to paycheck?
If yes, you probably rely on quick loans or fast cash advances to get by or solve financial emergencies. The average American holds about $38,000 in personal debt.
If you're currently looking to take out a loan, one of your options is a title loan. This type of loan is typically easier to qualify for than most unsecured loans.
But how do title loans work? What do you need to qualify for one?
Continue reading for deeper insight.
What Is a Title Loan?
A title loan is a form of credit that's secured against an asset with an ownership or registration title. Home title and car or auto title loans are the most common types of title loans.
How Do Title Loans Work?
If you've never taken out a title loan, you'd think that owning a valuable asset alone is enough to guarantee your loan approval. Well, owning an asset is a key requirement, but there are caveats.
Title loans are offered by both traditional lenders, such as commercial banks and credit units, as well as non-traditional lenders like online credit companies. Different lenders offer different terms and conditions. It's your responsibility as a borrower to find a lender that suits your needs.
Once you've identified your preferred lender, you'll have the meet the following requirements.
A Clear Title
To secure a title loan, the asset you want to use as collateral needs a clear title. This means you're the outright owner. If you're planning to secure an auto title loan, for instance, you should be the sole registered owner of the vehicle.
That being said, there are instances when you can secure a title loan even when your title isn't clear. Let's say you owe a mortgage, but you've got positive equity in the home. In this case, some lenders can agree to work with your title, but you'll need to get your mortgage lender's consent.
The Asset's Market Value Must Be Higher Than Your Loan Amount
Your collateral's market value must be higher than the amount of money you're looking to borrow. For instance, if you're borrowing $10,000, your car should be worth about $15,000 or more. This way, the lender is assured of recouping their money should the need to repossess your car arise.
During the application process, your asset will undergo appraisal to establish its fair market value.
You Get to Keep Using Your Car
You're probably wondering what happens to your asset after your loan is approved. You'll still retain ownership and possession, but some lenders might take additional steps, especially if it's an auto title loan.
It's not uncommon for lenders to install tracking systems on cars that have been used as collateral for title loans. Others can make spare keys, just in case they ever need to repossess the vehicle.
Get Your Title Loan!
If you were asking, "how do title loans work?" you now have the answer. From the most common types of title loans to what lenders want to see in order to approve your loan, there's no doubt you've upped your knowledge of these loans. Go on and apply!
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