When Does It Make Sense to Take Out a Title Loan?

Alex Hamilton  |

Transunion claims that 3.21% of unsecured personal loans were delinquent in Q2 2018, down majorly from peak levels of 5.05%. But the personal loan sector is rapidly increasing, rising 17.5% in Q2 2018 to $125.4 billion. The number of accounts rose to 19.5 million, and we’re seeing a major surge in loans from FinTech companies, credit unions and banks.

When a person can secure a personal loan the traditional way, it often makes sense to go to a bank or credit union. Terms are more favorable, and you’ll be working with a lender that won’t charge exorbitantly high interest rates.

But when all else fails, there are also fast title loans which can be a good option for anyone with bumps and bruises on their credit.

Title loans are secured because you’re putting your title up as collateral for the loan. Since the lender has less of a risk, interest rates are often favorable compared to an unsecured loan. A lot of borrowers opt for a title loan when:

Title loan companies will sell your vehicle to satisfy the loan if you don’t pay. If your vehicle is worth $10,000, you may be able to secure a loan in the $2,500 – $5,000 range, or 25% to 50% of your vehicle’s value.

When taking out a title loan, you may have to install a GPS tracker on the vehicle in case you don’t pay your loan.

The tracker will help the lender find the vehicle and repossess it.

It's best to take out title loans when you have planned money coming in. Some loans will need to be paid off in 15 – 30 days, but others can be rolled into a new 30-day loan. Interest rates may only be 25% for a 30-day loan, but over the course of a year, the loan will have 300% interest – very high for any loan type.

If you’re not sure if you’ll have the money to satisfy the loan, you may not want a title loan. The risk is losing your vehicle, and even when sold, if the vehicle’s sale price doesn’t satisfy the balance of the loan, you’ll have to repay the difference.

It's a risky loan option, but it may be your only option for a fast loan with little or bad credit.

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