How Car Title Loans Work

There are several means by which one can take a loan. A car title loan is one of them. This is a widely familiar process by which the loan is taken in exchange of the car’s title.

This is possible as anyone who has a title of a car has full ownership of that car. The owner is then allowed to use the title as collateral for their loans. This means that the owner has handed his or her car ownership to the lending company.

This situation will not be a cause for alarm if done with credible and reliable companies. Even if you have taken out a car title loan, you will still have it with you and you can still drive it as if it is still your car. Take note, though, that this is only possible if you are regularly paying your dues. If not, the company may take possession of your car.

Taking a title loan is also risky and not advised if the transaction is made with a company that you have no trust with. You have to be aware of the fact that you are giving full ownership of your property to them and so you have to make sure that they will not run away with it at some point.

Because of this risk, car title loans may be considered illegal in some parts of the world. Another reason for this ruling is that the system can be taken advantage of by predators. The part where lenders run away is not very feasible. But, what is feasible is that these lenders may exploit the provisions of the agreement.

This can be explained in a situation where the borrower only got an amount that is 10% of the actual price of the car. But if the borrower will not be able to pay off the loaned amount, the lender can still take the car.

Most refer to the above system as “predatory lending”. The issues surrounding how the process is built, how the agreement will be made, and how it can be resolved shows that the benefits of getting the loan may not outweigh the risks that are present. Therefore, taking this loan may not be highly recommended.

Another undesirable aspect of this loan is that the interest rates that are involved are a little too high. In most parts of the world, car loans are given by lenders that are different from those who give out other types of loans. This means that for example, while taking out a payday loan only involves a minimum interest rate, taking out a car title loan may involve very high interest rates.

Although it may not be suggested that you take a car title loan, when the situation calls for it and you do not have another option, you can still go for it. Just keep in mind that you need to choose a reputable lender, pay your dues on time, and take a second look at the interest rates that are offered.