Archives for : October2012

Auto Title Loan Advantages and Disadvantages

Car title loanAn auto title loan is a kind of credit taken on short-term, usually for not more than one month. The loan is often secured by the title of the car. This basically means that if you fail to repay the loan, the auto loan lender has all the rights to take your car and sell it to recover their money. Car title loan lenders often offer the loan only if the car is fully in your custody; it’s not still under a loan. Auto loan lenders often offer their services to elderly people, military officers, low income earners and individuals with bad credit.

Benefits of auto title loans
Less risk: Perhaps the major advantage of these loans is that they have less risk as compared to the home loans, while still offering you the same value. Whereas you would always repay any type of loan on time, the car title loan comes with additional security knowing that the secured loan is not linked to your home, thereby reducing your stress and strain during these hard economic times.

Decent loan amounts: With payday loans and credit cards, the maximum amount of money you can borrow is usually small. With auto title loans, the maximum amount you can borrow depends on the value of your vehicle. The more the value of your automobile, the more you could borrow; in case you need the money. This is a significant benefit for people who require a little more than what the short-term lending options would allow.

No credit required: As long as you already own the car, the auto loan is normally secured against its value. Therefore it doesn’t matter whether you have a good credit score or not, to get these loans; you just need to own a car. These loans can be a relief to potential borrowers with no or bad credit history; which prevents them from getting short-term loans from banks.
Short-term loans: The best part about car title loans is the availability of credits of low value. Most financial institutions don’t lend less than $500. Furthermore, the loans could be used to meet any financial need.

Drawbacks of car title loans
High interest rates: The average monthly interest rate of these loans is about 25 percent. Most borrowers are individuals with low credit scores, who even find higher interest rates on their credit cards difficult to manage. Therefore, they may find it quite hard to repay the car loans.

Losing equity in your car: The borrower would always lose equity on the vehicle, if he/she fails to repay the loan. As the loan lenders only offer between 20-50 percent of the market value of the vehicle, on selling it they get an equity that duly belongs to the car owner.

Fees and rollovers: Auto loans often carry numerous fees that solely benefit the lenders. Lien fees, origination fees, late fees, document fees, and processing fees increase the borrower’s indebtedness. Some lenders may also make wayside fees mandatory. Moreover, if the borrower cannot make the repayment on time, he/she will need to rollover the auto title loan; which involves additional fee.