Taking out a car title loan can make it easy to get quick cash when you’re in a financial bind. However, these loans have severe risks and drawbacks that you must consider before signing on the dotted line. As a borrower, it’s essential to understand precisely how car title loans work and to ask the right questions to avoid pitfalls.
This comprehensive guide provides expert advice on vital questions to ask before committing to a car title loan. We’ll overview how title loans function, look at potential downsides, and offer tips to safeguard your interests as a borrower.
Read on for insider guidance to make an informed decision when facing an urgent need for funds.
What is a Car Title Loan, and How Do They Work?
A car title loan allows you to leverage your vehicle’s value to borrow money for a short period. With a title loan, you put up your car as collateral for the funds you receive.
How Do Car Title Loans Function?
The premise of a title loan is simple: a lender advances you cash, and you provide your car title as a guarantee you’ll repay the money. Typically, you get 25% to 50% of your car’s resale value in loan proceeds.
Throughout the loan, you retain possession of your vehicle and can continue driving it. However, the lender registers a lien on the title and can seize your car if you default on payments.
Title loans generally carry high-interest rates and last for short terms of 30 days to 3 years. You’ll need to repay the entire loan plus fees and interest charges over regular intervals in your contract.
What Are the Eligibility Requirements?
To qualify for a title loan, you’ll have to:
- Be the registered owner of your vehicle
- Have comprehensive insurance coverage
- Show proof of identity, income, and residence
- Provide vehicle registration and title documents
Lenders may also appraise and inspect your car to verify its roadworthiness and value before approving a title loan.
The Potential Risks and Drawbacks
While title loans provide near-instant cash, they can be extremely risky and expensive compared to other financing options. It pays to consider their potential downsides before taking one out.
Title Loans Have Exorbitant Interest Rates and Fees
Interest rates on title loans often exceed 30% annually. This results in you paying back far more than the amount borrowed over a short timeframe.
Additional fees lenders can charge add further costs, including Origination fees, Title search charges, Administration fees, Late payment penalties and Car inspection costs.
It’s easy for these charges to snowball, making title loans an exceptionally pricey way to borrow money.
You Could Lose Your Vehicle
The most significant risk with a title loan is losing your vehicle if you encounter hardship repaying the debt. Defaulting on payments gives the lender the right to possess your car and sell it to recoup their money.
This can leave you without transportation—and you still owe outstanding fees if the car sells for less than what you borrowed. It’s a scenario you want to avoid at all costs.
What Should You Consider Before a Title Loan?
Before turning to a title loan, always exhaust lower-cost borrowing alternatives first, including:
- Personal loans from your bank
- Increasing limits on existing credit cards
- Borrowing from friends or family members
- Vehicle equity lines of credit
Also, build emergency savings to cover unexpected expenses instead of resorting to costly financing through title loans.
What Questions Should You Ask Before Taking Out a Title Loan?
If you decide to move ahead with a car title loan, probing the lender by asking these key questions is vital to avoid surprises.
What Are All the Repayment Terms and Conditions?
Comb meticulously through the proposed title loan contract before signing. Important points to confirm include:
- The exact schedule of payment amounts and due dates
- Rules regarding late fees, renewals, and early repayment
- Whether balloon payments apply to the back end of your term
Don’t leave any ambiguities surrounding repayment—get definitive answers from the lender upfront.
| Payment Amount | $X/week |
| Payment Due Dates | Every Friday |
| Late Fee | $25 after 7 days overdue |
Can They Remotely Disable Your Vehicle?
Many title loan companies install starter interrupt devices and GPS trackers on collateralized vehicles.
Ask precisely how they utilize these tools before agreeing to them:
- Under what circumstances do they remotely disable cars?
- Can you quickly get the car reactivated if payments fall behind?
- How long is location data retained?
Don’t allow car immobilization without definite safeguards in place around usage policies.
What Flexibility Options Exist If You Struggle Financially?
Unfortunately, financial hardships happen. If making payments becomes difficult over your loan term, you’ll want options like:
- Leniency around due dates when you communicate issues
- Workout assistance to adjust payment plans
- Alternatives besides immediate repossession
Choose lenders willing to work with customers facing difficulties—not just strictly enforce draconian collection tactics.
Is the Lender Reputable and Licensed?
Not all title loan providers operate ethically or legally. Be diligent by:
- Checking complaints filed against the lender
- Confirming they have an official operating license
- Getting references from past customers
This shields you from potential frauds looking to take advantage of those in desperate situations needing quick money.
How Should You Handle Repaying Your Title Loan?
Once you’ve secured a title loan, making on-time payments is imperative to avoid losing your vehicle. Here’s expert guidance on navigating the repayment process.
Make Every Payment by the Deadline
Set calendar reminders for each instalment due date and pay at least the minimum by these designated times—late fees and other penalties quickly compound costs for overdue payments.
Staying current protects your vehicle and credit score until you fully repay the loan.
Pay Off the Principal Early If Possible
Making extra payments toward the principal loan balance reduces the total interest you pay over time. Even small additional deposits go a long way. Speak to your lender about allowing overpayments without penalty.
Ensure All Liens Get Removed
When you pay your loan ultimately, have the lender file paperwork immediately removing any liens attached to your car’s title. This formally restores unencumbered ownership rights to you.
Don’t neglect this crucial final step when closing out your title loan!
Can You Reclaim Your Vehicle Post-Repossession?
If the unthinkable happens and your car gets repossessed, you may have redemption rights to buy it back. This involves paying the loan balance plus recovery fees and storage costs.
Act quickly after repossession to ask about reclaiming your vehicle. The sooner you arrange the buyback, the lower the overall expenses incurred.
Other Frequently Asked Title Loan Questions
Can You Get a Title Loan on a Financed Car?
Lenders may approve a loan in limited cases if previous auto financing is nearly paid in full. But typically, ownership free of any existing liens is a prerequisite.
Do Title Loans Appear on Credit Reports?
Most title loan providers don’t report payment histories to credit bureaus. However, if you default and the car gets repossessed, this typically shows up and hurts your credit score.
What If Your Vehicle Sustains Damage?
Always notify your insurance company whenever a new lien gets placed on your car. Omitting this could cause denied coverage for accidents or theft. Keep your insurer updated on any title loan details.
Getting Help from Reputable Lenders Like BHM Financial Group
With the risks involved with title loans, it pays to work with established, reputable providers. BHM Financial Group has over 15 years of experience providing car title loans to Canadians with poor credit or no credit history.
BHM understands that falling on hard times can happen to anyone. Their lending approach focuses on the current value of your vehicle rather than old credit scores. This makes quality title loans accessible to those unable to qualify through traditional banks.
They offer loans on cars, trucks, RVs, boats, and mobile homes. Plus, you get to keep driving your vehicle throughout the loan. BHM pledges to tailor repayment plans that fit borrowers’ financial situations.
For expert assistance weighing the pros and cons of using your car to secure financing, contact BHM Financial Group. Their seasoned team can advise if a title loan is your best option and explain what to expect at each step of the application and funding process.
Where to Get Further Assistance
If you still have uncertainties about the implications of title loans, consult:
Financial advisors to discuss whether it aligns with your overall budget and savings goals
Credit counsellors to investigate other potential borrowing alternatives
Provincial regulators to clarify specific lending rules and consumer protections in your region
With greater awareness of the questions to ask before getting a title loan, you can make prudent choices concerning using your vehicle as collateral during challenging financial straits. Reach out for expert guidance if you need clarification before moving forward.