Taking a loan is not easy. The jumping through hoops of lenders, documents, verifications, and paperwork is not a job for everyone. But lenders are always trying to formulate a new way to lend money and accept interest rates. And car based title loans are one of these loans. They are not the most cost-effective way of borrowing money but when the time gets rough they surely come to the rescue.
So what are exactly title loans? Title loans are high-interest, over-secured loans where a vehicle is kept as collateral. It is generally used by people with bad credit or a low income when they don’t qualify for a prime rate bank loan or even a credit card. These are specialty loans. They are less stringent in terms of verification, documentation, and requirements.
You should be extremely careful when you are opting for a car loan. There are many dubious title loan providers and without reading the fine print or knowing the terms and conditions, you can get into serious trouble. Here are 5 tips for choosing the best title loan-
Only Borrow an Amount That You Can Pay Back
You will see lots of marketing material, promoting up to $20000 or even more. But that does not mean that you should go and borrow that much. You need to examine your income, situations, and circumstances to be sure that you can make the payments on your loan.
Title loans are easy to borrow but just like any other loan, you should be careful and only borrow the money that you need. If the loan amount is bigger than your expenditure, you are only collecting debt and entering into a cycle that will cause you problems in the future.
Check the Annual Interest Rate
When the car title loan providers give you a quote of 20%, ask them if it’s the annual percentage rate or is it the monthly rate. A simple 20% monthly quote can mean $2400 in interest for a $1000 principal. You’d want the lowest APR for the loan.
Even a small change in the APR can make a huge difference on the interest you pay.
Don’t Sign a Forced Arbitration Clause
It means that you cannot drag the lender to the court in case of any dispute but the lender can. Once you sign a forced clause, you will be there for a tough ride in case any problem occurs which will require court intervention. You are basically stripped of your rights.
Check the Operating Licence
Title loans are a shady business and some states or provinces don’t allow such loan businesses. It is therefore suggested to carefully check the local guidelines and the lender’s license to make sure you are not going to enter into any legal issues.
Check the Loan Prepayment
Many lenders will have a penalty for the prepayment of the loan. After all, the regular interest rates are their profit. So, learn about the prepayment details and keep the payment to the last date even if you have the money pay it right away.