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Do your bills and payments seem like they are starting to pile up? When important financial deadlines sneak up on us, things can get difficult. Financial assistance from a car title loan could be the answer you’ve been looking for. But what are the pros and cons of using an auto title loan for your cash needs? Keep on reading to find out about the benefits and potential drawbacks that come with this loan option!
What’s a Car Title Loan?
To better understand the pros and cons of car title loans, it’s important to first understand what a title loan is. Simply put, an auto title loan is a loan that is primarily based on the equity of the borrower’s drivable motor vehicle, and the borrower’s income. Title loans can go by many different names, including pink slip loan, auto equity loan, car collateral loan or car title pawn. Regardless of the name, this type of loan requires that the applicant owns a paid-off or close to being paid-off car or truck.
Car Title Loan Pros
Car title loans can offer several benefits to borrowers, depending on their needs and financial circumstances. The pros that title loans are predominately known for include:
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- Quick access to cash: Title loan are designed for speed and convenience. Most title loan lenders offer a streamlined process that allows approved applicants to receive their loan proceeds as fast as the same day they get approved.1 3
- Easy to get approved for: Since auto title loans are secured by the applicant’s vehicle, they often come with higher approval rates than unsecured loans. Especially when compared to the approval requirements for loans from a bank or credit union, title loan approval requirements are much less stringent. As a result, it’s relatively easy for many applicants to qualify for a car title loan, even if other lenders wouldn’t approve their credit application.1
- Simple process: Compared to many other loan options, title loans offer a relatively simple process. Upon approval, prospective borrowers usually only need to provide a few basic documents, sign a loan contract, and submit their vehicle title to finalize the loan and get funded.
Car Title Loan Cons
Like any other financial product, auto title loans also come with some potential cons that you should be aware of if you are considering to apply for one. The potential downsides of borrowing against your car title include:
- Borrowing cost: There are many companies that offer title loans, so there is intense competition to offer the best interest rates possible. Despite that, title loans tend to be an expensive form of credit, especially when compared with traditional loans from a bank or credit union.
- Requirement to use your vehicle: The requirement to use ones vehicle as collateral in order to qualify for the loan is in itself a potential con. Title loan borrowers risk their vehicle if they default on the loan. Title lenders use vehicle repossession as the last resort if a borrower fails to meet their payment obligation.
- Debt cycle risk: If a borrower can’t fully afford their title loan payments, there is a risk that the borrower may need to roll over their title loan into another one, and pay a rollover fee. This risk increases for title loans that have high interest rates, a short loan term, or a balloon payment.
What Are The Pros and Cons of Title Loans Serviced by LoanMart?
The above mentioned advantages and downsides of a title loan apply to title loans serviced by LoanMart as much as they apply to most other title loan providers. There are however a few unique potential benefits to consider if you end up choosing to apply for a title loan serviced by LoanMart:
- Lower debt cycle risk: title loans serviced by LoanMart don’t have any balloon payments, and they also don’t have any extremely short terms such as 30 days or 60 days, like some other title loan providers offer. This allows for more manageable title loan payments.
- Competitive interest rates: As mentioned above, title loans are usually not a cheap way to obtain the cash you need, and are primarily chosen for speed and convenience. Nevertheless, title loans serviced by LoanMart are competitively priced. If you apply and get approved, be sure to compare your approved Annual Percentage Rate (APR) to any other loan offers you have.1
- Potential to help you build or rebuild credit: Title loans are often not reported to the credit bureaus. However, car title loans serviced by LoanMart are reported to a major credit bureau – this allows borrowers to potentially build or rebuild their credit by making on-time payments. At the same time, missed payments will of course also be reported and may deteriorate the customer’s credit score.
- Peace of mind through right to rescind: Most title loans serviced by LoanMart give borrowers the right to cancel the loan in the first few days, by returning the loan proceeds and any fees that were already paid on the borrower’s behalf.4
Are Title Loans Worth It?
Whether an auto title loan is a good idea or a bad idea depends on your particular financial situation, needs, and the alternatives that are available to you. So in the end, you’ll need to decide for yourself.
While no one can answer this question for you, here are a few questions to consider as you decide if a title loan is worth it for you:
- How urgent is your need for cash?
- How sure are you about your ability to take on an additional loan payment?
- What alternatives do you have, such as other loan options or borrowing from friends or family?
- Do you fully understand the title loan terms?
If – after weighing the pros and cons – you decide that a title loan could be a good idea for your financial needs, apply online to see if a title loan serviced by LoanMart can be a good option for you!
