Car title loans are known by many names, including title loans, auto title loans and pink slip loans. They are a type of secured loans where borrowers use their cars as security or collateral. Therefore, borrowers who want a title loan must be willing to temporarily surrender their car title. However, once the loan is paid back, the car’s title is then returned to the owner. A borrower who defaults on repaying allows the lender to repossess the car in order to sell it and settle the outstanding debt.
- Short-term loan
Title loans are short-term in nature. Furthermore, they are often facilitated at high rates of interest compared with most of the other credit options. Lenders support their comparatively high interest rates on the premise of high risk of borrowers defaulting on a loan that is applied exclusively by persons who are experiencing financial difficulties.
- Background check
Lenders of title loans do not perform a background check of borrowers to determine their credit score or history. They are mainly interested in the condition and value of the borrower’s vehicle because it is the key item that will be used to secure the loan. Nevertheless, many of the lenders are unwilling to loan less than $1,000 to persons without any credit because they consider these unprofitable and risky. Furthermore, most lenders seek to verify whether the borrower has a regular source of income or not, or if he or she is in employment.
- Application process
The majority of the title loans can be applied online and received within a span of 15 minutes, especially for small amounts of loans. The amount of money a borrower is qualified depends on the value of their vehicle. The lender looks up the auction or sales value of the vehicle that will be used to secure the loan. Depending with the lender, a loan of between 20% and 50% of the vehicle’s value is given. This grants the lender some room to make a small profit, if the borrower defaults. They can repossess and sell the vehicle at a profit in an auction.
