What Is a Title Loan vs. a Personal Loan?

Between student loans and general utilities, the average American is over $90,000 in debt. Saving money to pay off expenses isn’t always an option. Sometimes unexpected emergencies come up that make matters worse. 

In these instances, a title loan might be able to help you. What is a title loan, and is it better than taking out a regular personal loan? 

That depends on what your needs are. Title loans force you to put your vehicle up as collateral, but they’re easier to get if you don’t have the best credit score. 

Continue reading to learn more about how title loans differ from personal loans and find out which option you should choose. 

What Are Personal Loans?

A personal loan is a set amount of money that you can borrow from a bank or credit union. You’ll have to pay it back in fixed amounts every month. 

You can use a personal loan for a variety of purposes, including debt consolidation and medical expenses. 

Pros

While some would advise against taking out more debt when you already owe money, there are many advantages of using a personal loan to better your situation. 

You can get the money you need in a single lump sum, there’s no collateral, and they often come with a low-interest rate. 

One Lump Sum

In most cases, once you’re approved for a personal loan, you’ll find it in your bank account the next day. Receiving your payment in a single lump sum makes it easier for you to drop cash on large purchases. 

Since you have access to all the funds at once, you can expect to pay a fixed rate every month. It makes the loan simple to manage, which will allow you to avoid any late payments. 

No Collateral 

Unsecured loans don’t require you to put down anything as collateral. That means, if you can’t make your monthly payments, you won’t be risking your home or vehicle. 

This being said, if you don’t pay your debt, it will cause your credit score to go down. 

Low-Interest Rate 

While you can use a credit card to cover large expenses, they often come with higher interest rates than personal loans. That means you’ll pay less in the long scheme of things.  

Keep in mind that the interest rate will vary depending on your credit score. The lower your score, the higher your rate. 

Cons

Besides the possibility of putting yourself further in debt, there are other cons to taking out a personal loan. 

If you pay off your loan early, you may have to face all sorts of penalties and fees. They can come with high monthly payments as well.

Penalties and Fees

Taking out a personal loan often comes with hidden fees. The lender may take as much as 6% out of the loan as an orientation fee

If you finish paying off the loan before the repayment term ends, you may face a penalty. 

High Monthly Payments

Credit cards might come with a higher interest rate, but the monthly payments are often lower than that of personal loans. There are also no penalties for paying your credit card balance off early. 

If you’re using your personal loan to consolidate your credit card debt, you’ll have to make adjustments to your budget to accommodate the added costs. If you don’t, you risk defaulting.  

Increased Debt 

Personal loans can be an amazing tool for consolidating debt, but they don’t address the reason why you had to consolidate in the first place. 

When you use a loan to take care of your credit card debt, you free up your limit. If you max out your credit cards again, you’ll only put yourself deeper into debt. 

What Is a Title Loan?

If you have a bad credit history, you may not qualify for a personal loan. If you still need access to quick cash, you can attempt to get a title loan instead. 

This is a type of secured loan that involves putting your vehicle up for collateral. 

You’ll need to sign over the title of your car to the lender temporarily. Once you do, you’ll receive about 25% of your vehicle’s total worth in exchange for cash. 

Pros 

Even though taking out a title loan requires you to put your vehicle up for collateral, there are still plenty of benefits to going through with the process. 

You can obtain quick cash that you can use to pay off your debts. They often come with low credit check requirements, and you can continue using your vehicle throughout the course of the loan. 

Quick Money

One of the biggest advantages of taking out a title loan is that once you’re approved, you’ll receive the money much faster than you would with any other loan. 

So, if you need cash urgently to pay off your bills, going through with a title loan isn’t a bad idea. 

Low Credit Check Requirements 

Since you’re putting your vehicle up for collateral, lenders don’t care much about your credit score.

Most don’t even check it and are more than happy to accept someone with bad credit. As long as you own your car (and it works), it will be easy for you to get a loan. 

Continue Using Your Car 

Even though you’re handing over the title of your car, you can still drive it during the term of the loan. 

When it’s all said and done, you’ll get to keep the car as long as you make all of your payments on time. 

Cons 

The risk of repossession isn’t the only con that comes from taking out a title loan. You also have to worry about high-interest rates and fees. 

Repossession 

If you can’t pay back your loan, the lender will take your car to cover what you owe and then some. 

In rare instances, your problems won’t end after repossession. If the estimated value of the car is off, the lender may not be able to get enough for it to wipe your debt clean. They’ll reach out to you to collect the rest. 

Hidden Fees

Be sure to check the fine print before you sign off on a title loan. They can come with hidden fees attached. 

For example, you may have to pay a repossession fee if you can’t pay off your loan on time. The best way to avoid these hidden costs is to do your research and choose a reputable lender

High-Interest Rates 

As is the case with many no-credit-check loans, title loans come with high triple-digit interest rates. 

This can make the loan difficult to pay back. Especially given the short 15 to 30-month repayment terms. That’s why you have to make sure you’re financially ready before going forward with the loan. 

Title Loans Vs. Personal Loans

Now that you know more about personal loans and title loans, it’s time to compare. How are they different, and how are they the same?  

Application Process

The application process for personal loans is pretty simple. In many cases, a lender will reach out to you by sending you a prequalification letter in the mail. Keep in mind that this isn’t an approval. 

It only means that after doing a soft check, the lender has determined that you may qualify for one of the loans they have available. You’ll have to go online to actually apply. 

To begin the application, you’ll need some proof of income, your address, and your banking information. The lender will use this information, coupled with your credit score to make a decision. 

The application process for a title loan is a bit less involved. The lender doesn’t need your credit score. That means all you’ll need is your car title, your ID, and proof of insurance. 

You won’t be able to apply for a title loan online. The lender will need to meet you in person to perform an inspection of your vehicle. 

Once the lender takes a look at your car and makes copies of your documents, they’ll hand you the cash. 

Interest Rate

When you take out a personal loan, you can expect to pay an interest rate of 5% or higher. 

The interest rate on title loans is higher by comparison. The average is about 20%. 

Credit Impact

Title loan lenders don’t report your missed payments to credit bureaus. So, if you can’t pay back your loan, it won’t cause your credit score to go down.

On the flip side of this, making your payments on time won’t help your score go up either. 

If you miss payments on your personal loan, the lender will report it to credit bureaus. If you stay in good standing throughout the course of the entire loan term, your score will go up. 

Be sure not to apply for several personal loans at once. Every hard inquiry will have an impact on your score. 

Collateral 

Again, most personal loans are unsecured. If you don’t pay your debt, the lender can sue you for the entire amount due or send your account to a collection agency, but they can’t repossess your belongings. 

When you take out a title loan, you’re securing it with your vehicle. Until you make your final payment, the lender will hold on to the title of your car. 

If you can’t pay the amount that you owe, the lender will take the vehicle as promised in the contract. Some lenders do place devices on a vehicle that will disable it if you default on your loan. 

Eligibility

Your eligibility for a personal loan mostly depends on your credit score, the number of debts that you have, and your source of income. If the total amount of your monthly debts comes within a certain range of your income, the lender is likely to turn you down. 

That’s why if you need cash in a hurry, title loans are the better choice. Most lenders won’t check your credit score or employment. All you have to do is show the lender proof that you own your vehicle. 

Some states do require lenders to check your source of income, but title loans are still easier to get than personal ones. 

Can You Use a Personal Loan to Pay off a Title One? 

The answer here is yes. If an emergency situation forces you to rush into a title loan, you can use a personal loan to cover the title loan. 

On top of no longer risking your car, you’ll also get to trade out a high-interest loan for a lower-interest one. 

Are There Personal Loans Without Credit Checks? 

No. All personal loans come hand in hand with a credit check. If your credit isn’t the best, you’ll need to get a title loan instead. 

You can also reach out to a co-signer. Having someone sign with you who has a better score will increase your chances of getting approved. 

There are some personal loans that are specially designed for those with bad credit scores. They often come with higher interest rates, though.  

Choose the Best Loan Option for Your Needs 

What is a title loan? It’s a no-credit-check loan option that will give you the money you need to pay your debts. The catch is that you’ll have to put your vehicle up for collateral. 

If you’re worried about not paying the loan back on time, you can try for a personal loan instead. The eligibility requirements are stricter, but you don’t risk losing your car. 

Would you like to learn more about obtaining a title loan? Contact us to speak with one of our representatives. 

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