/ Car Title Loans /
First, you need understanding what car title loans are. Car title loan is a secured type of loan. Secured loans require you to have collateral to act as a guarantee on the loan you wish to partake. In case of default in payment, the lender has all the necessary rights to auction your property to involve the expenses. In this case, if you fail to pay, the lender enjoys the legal legitimacy to auction your car as a means of payment. Another thing to note is that car title loans are short-term loans.
Depending on the type of the lender, you can only access an equal car title loan to 25% to 50% of the current value of your car. Standardly, car title loans are repayable within 30 days. However, some lenders tend to extend the loan where risks of defaulting are low.
One advantage of car title loans is that the process of obtaining loans is not complex. The lender does not have to assess your credit or financial history. This is because the car title acts as full guarantee of the amount you intend to borrow. However, this can get you into trouble since they don’t assess your ability to repay the loan. Thus, once you default in paying, they will have no choice but take your car.
Many individuals do not prefer car titles. In fact, most states in the United States does not approved car title loans. In state where it’s legal, they are heavily regulated by the state government. This is to limit the illegal lending activities.
Most people don’t prefer car title loans since they are preferred as the most expensive type of loan. Before interest rate capping, some lenders used to charge an Annual Percentage Rate of 300%. Currently, the law requires them to operate at 36% APR. In fact, some of them still operate under exorbitant rates.
According to the financial consumer protection board, only 12% individuals are able to pay car tittle loans in loans. This means that 88% of borrowers end up loosing their cars to the lenders.
/ Auto Equity Loans /
This is an easy means of getting quick cash to clear out your debts or bills. However, auto equity loans have their drawbacks. Before you opt for this loan, you have to know how it works. Auto equity loan is a secured loan just like a homeowner loan. In this case, your car acts as collateral to guarantee payment of the loan.
The difference between auto equity loans and car title loan is the loan span. Unlike car title loan where the span is one month, with auto equity loans, a lender will allow you 12 months of repayment. However, this is dependent on the loan amount and the lender.
Unlike car title loans, you do not require producing a car title when opting for auto equity credits. In this manner, this loan is available for individuals who do not have car titles but still making payments.
It’s more straightforward to work with auto equity loans than personal loans. Personal loans have prepayment penalties. You can cut out the interest by making payments before the loan agreement period. Auto equity credits do not have prepayment charges.
There are several risks involved when opting for auto equity loans. First when you miss a lump-sum payment, you run the risk of loosing your car. On top of that, you could damage your credit card scores.
Just like car title loans, auto equity loans maintain exorbitant rates. They have an APR rate ranging from 36% to 500% depending on the lender. In this case, loan amounts are determined by the value of your car.
These loans have numerous top-up fees. Once you extend your loan amount, the lender charges you an add-on fee.
/ Auto Pawn Loans /
They are similar to auto equity loans. The unique thing is you are able to get a short-term loan with a title on your hand. If you have many pawn loans, the pawn shop maintains your car. However, this is dependent on your lender.
You have few months to repay your loan. Just like auto equity and car title loans, the interest rates are high.
/ Conclusion /
As clearly illustrated, there are three types of car loans with their benefits and drawbacks demonstrated.