A car title loan allows you to borrow against the equity of a car that you fully own. Car title loans are only available to individuals who own their cars; they are not available to you if the bank still owns the title to your loan. Before agreeing to a title loan, there are a few things you need to know and check.
Make Sure Your Car Qualifies
First, make sure your car qualifies before you go through the loan process. Most car title loan lenders will post basic requirements about the loan on their loan pages in order to only process loans that qualify. Check and make sure your vehicle qualifies before you apply. Oftentimes, the lender will only accept vehicles that are manufactured before a certain year or that have a certain number of miles on the vehicle.
Understand the Payment Options
Before taking out a title loan, you need to make sure you know the payment options that are available to you. You need to know how you are expected to pay the loan. Will the loan come out of your paycheck? Will they set-up a direct payment from your bank? Make sure you are comfortable with the payment methods and you know how and when the payment will be taken from you.
Keep the Loan Short
You also need to make sure you know how long the loan is designed to last. A longer loan may seem better, because the loan payment is smaller. However, a longer loan usually means that you pay more in interest over the lifetime of the loan. If you want to save real money, take on larger loan payments over a shorter period of time. This will allow you to get the loan you need without overpaying on interest for the loan.
Always Ask About Repayment Penalties
When you take out a title loan, be sure to ask about repayment penalties. Repayment penalties come into play when you pay the loan of early. Instead of rewarding you for paying off the loan early, the loan company will penalize you for paying off the loan. You will have to pay an early pay-off fee. This fee is designed to make sure that the loan provider doesn't lose out on any interest they could have earned on the loan.
Ideally, you want to work with a lender that will not charge you an early repayment fee. This will allow you to save money if you are able to pay off the loan in advance.
Auto title loans allow you to gain access to the necessary money to purchase a vehicle. Before applying for the loan, make sure your vehicle meets their basic requirements. Once you are presented with a loan, be sure you understand the payment options, go for a shorter loan period over a longer period, and be sure to ask about repayment penalties.