A car title loan is a safe loan for little cash needed for a short period of time as well as at a high rate. It is also known as the pink slip loan, title pledge or title pawn. This loan as derived from its name requires the clear title of your car as the collateral or security for a loan. The loan is usually for a period of 13 to 30day time span.
It is a costly form of loan due to the interest rates that are attached to the loan and when you cannot afford to pay back the loan as scheduled, you might eventually lose your vehicle to the lender. This is however a good investment for both the borrower and the lender because it involves a quick and transparent application and approval processes.
Let us assume the borrower is in a financial crisis meaning the borrower might have lost his job, cannot afford to pay their rent, in need of money for the child’s tuition or some other numerous reasons why the borrower needs quick cash. Depending the value of the vehicle, the borrower will receive up to whatever maximum the loan firm can offer. Some lending companies offer up to $100,000 and others may give as low as $5000. Obviously if the borrower drives a BMW or Mercedes he would be able to get a larger loan value just that every car title loan company is different.
If we go back to the first few sentences in this article you will see that the title loan company uses the car title of the borrower as collateral during the loan process. What this means is that the borrower hands over the title of his car which is the document of ownership to the lending company.
During the loan process, the lending company get its interest from the loan. Although all companies are different, while some companies charge high interest rates others charge low interest rates. Nobody would definitely want a high interest rate but some companies with high rates often give more incentives to the borrowers.
What really are the incentives? This depends on the company, it could possibly mean an extended loan repayment process or that the loan company is very lenient on the amount of cash finalized in the loan.
If by the end of the loan process the borrower is unable to come up with the payment of the money and the lending company has been lenient to give the borrower different loan extensions. The lender legally receives the borrower’s car title which means the company now has the ownership of the car. The lending company can either sell the car to recoup the fund or turn it over to collections. The borrower has to be careful when making the loan decision and he should ensure he treats the loan like his monthly rent in order to pay off the loan as scheduled. With this he doesn’t loose his car to the lender.