As the cost of living rises in America, more people than ever before are struggling to manage their finances. This can make paying for everyday expenses, such as travel and groceries, a challenge.
However, it also causes serious issues for people buying big-ticket items. For example, it has become much harder to save for a new car or equipment for work. This is why more than 130 million Americans have taken out a personal loan during their life but which type of loan should you choose?
Securing a title loan is a great way to get financial aid quickly and easily. Nevertheless, to find a good lender and repayment terms that work for you, there are several important questions you should ask.
Read on to find out exactly what you should ask before securing title loans.
What Is a Title Loan?
A title loan is a type of secured loan that makes it easy to borrow thousands of dollars quickly.
Like other loans, you pay your loan back in installments over a set period of time. Lenders charge interest on your loan repayments, which is how they make money on their loans.
For example, let’s say you borrow $1,000 and pay it back over 18 months with a 25% interest rate. Over 18 months, you will pay around $250 in interest on your loan.
However, you only have to pay back $69 per month, which is much more manageable than spending $1,000 in one go! Or you could make smaller, bi-weekly payments to make things even more manageable.
To apply for a title loan, you have to offer up your vehicle, or another valuable asset, as collateral against it. This means that if you do not meet the repayment terms of your loan, the lender can repossess your collateral. They will then sell it on to recover the money they loaned.
This might sound like a scary prospect. However, provided you make your loan repayments on time, you should be able to borrow the money you need without putting your property at risk.
What Are the Benefits of Getting a Title Loan?
There are a lot of different personal loans that you can take out if you are in need of some extra cash. However, securing a title loan comes with some unique benefits.
Lenders approve title loans quickly so you will get your hands on the money you need in no time. This makes them very useful if you need cash urgently.
You also don’t need to provide vehicle requisition paperwork. This can save you a lot of time when applying for your loan.
Perhaps most importantly, lenders do not run credit checks or ask for guarantors on title loans. Your credit score reflects how well you have managed your money in the past. Paying your bills on time, for example, can improve your credit rating.
However, 11.1% of Americans have a bad credit score (630 or less.) This type of score can make it incredibly difficult to get approved for a loan. Or it may mean lenders offer you very high interest rates or long loan repayment windows.
With a title loan, you don’t have to worry about this. Your loan repayment terms will not be affected by your credit score, no matter what it is.
How Much Do You Need to Borrow?
Before you take out a loan, you need to calculate how much you need to borrow.
This will depend a lot on how much you have saved and what you want to buy. Title loans are a great way to secure the last bit of financing you need for a big-ticket purchase.
Because of this, it is a good idea to save up in advance and then use your loan to close the gap. This means that you won’t need to borrow as much. The less you borrow, the less you need to pay back and this also means you’ll pay less interest.
It is also a good idea to look over your financial budget and see if there are any areas where you could cut back on spending. This will help you save for your purchase.
Once you know how much you definitely need to borrow to can start looking into lenders.
How Much Can You Afford to Pay Back?
You also need to think carefully about how much you can afford to pay back on your loan. This will ensure that you make your repayments on time and don’t lose your collateral.
To do this, look at your monthly income and spending. You will have certain fixed expenses, such as bills and rent.
However, it is worth seeing if you can cut back on spending elsewhere. This could help you manage larger monthly repayments. So you can borrow more or ask for a shorter repayment window.
Interest Rates and Repayment Windows
Your repayment terms will affect how much you have to pay back every month. Because of this, you should discuss them carefully with your lender before accepting a loan.
Your interest rate dictates how much you pay your lender on top of your initial loan. So ideally, you want to keep this as low as possible. For example, an 18% interest rate is much better than a 25% interest rate.
A longer repayment window means that you don’t have to pay back as much each month. This can be a good option if your monthly budget is already tight.
However, having a loan for a longer period of time means you’ll have more time to accumulate interest on it. So it is worth calculating how much you’ll end up paying back in the long run before accepting a lower interest rate.
Does Your Lender Offer Competitive Interest Rates for Title Loans?
Speaking of interest rates, it is important to look at what is on offer before you accept a loan. This will ensure that you are getting a good deal.
One of the ways that lenders compete with one another is by offering great interest rates.
The average interest rate for a title loan is 25% (or 300% APR.) So if a lender offers you interest way above this you should look elsewhere.
That said if a lender offers you an interest rate way below the average (10% or less) it is worth asking a few questions before accepting this. What sounds like a good deal may be too good to be true. Because of this, you should make sure that you understand all of your repayment terms before signing any paperwork.
Does Your Lender Have Experience Handling Title Loans?
Most people in America don’t have detailed knowledge of the car title loan process. So it helps to find a lender who understands the business.
They will be able to work with you on calculating your interest rates, payment windows, and loan amounts. This ensures that you get the best possible deal on your loan.
Are There Any Hidden Fees?
One way that some lenders make money out of you is by charging you additional fees. This might include fees for:
- Processing your loan paperwork
- Processing payments
- Sending out payment reminders
- Making changes to your prepayment window
- Accepting early repayments
Some fees are unavoidable. After all, your lender has to cover their administrative costs.
However, it is important that you understand these fees in full. Hidden costs can really add up during your loan repayment period and this may come back to haunt you if you don’t budget for them.
Before signing up for a loan, make sure you ask an advisor about the costs involved in your loan. They will be able to explain how much you can expect to pay and what this covers.
Loan companies may also charge you additional fees for late payments. It is important that you understand how much they charge before you accept a loan.
While everyone plans to meet their repayments on time, sometimes matters are out of your control. So it helps to have an understanding of late payment charges. This can also make you aware of lenders that are trying to take advantage of their clients.
You should always read the terms and conditions of your loan contract before signing it. This will include details of all the fees you may have to cover. You can go back to your lender with any questions you might have before signing your contract.
If a company isn’t forthcoming about hidden fees then this isn’t a good sign and you should look elsewhere.
Does Your Lender Offer Flexible Loans?
Taking out a title loan can provide valuable financial relief. Nevertheless, this won’t automatically solve your cash flow problems for the rest of your life. Financial planning can help you stay on top of your loan repayments so that you don’t slip into more debt.
However, it also helps to find a lender who offers flexible loans. This shows that a company is reasonable and willing to work with its clients to find terms that work for them.
A flexible loan gives you the room to adjust your repayment terms if you are struggling with your monthly installments. While it isn’t ideal, adjusting your repayment window to lower your monthly payments can help in the short term.
This gives you more time to seek additional income or adjust your monthly budget. It also frees up some of your income so that you can afford your daily expenses.
Before choosing a lender, make sure that you ask about flexible loan options. If a lender is willing to discuss options and works with you then this is a good sign.
In contrast, if they aren’t very accommodating then you should look elsewhere. The last thing you want is to be stuck with a loan you can’t manage without support from your lender.
Can You Find Customer Testimonials?
Before securing a loan from a lender, you should always take a look at reviews from previous customers. This can give you a realistic picture of whether or not they offer a fair deal and how they manage their loans.
When looking for testimonials, make sure you check independent websites, such as Google Reviews. A lender is not going to advertise bad reviews on their own website!
Make sure that you look for recent reviews (ideally no more than three years old.) These will give you a clear idea of what is on offer now.
Of course, you want to find a lender who offers great interest rates. However, you should also look out for green flags, such as lenders who:
- Communicate well and offer a range of ways to reach them if you have a problem
- Deliver brilliant customer support
- Offer flexible loans
- Charge low administrative costs
- Tailor loan repayment terms to suit their customers
- Create clear, easy-to-understand contracts
- Are open and honest about their additional fees
Negative reviews can be as useful as positive ones. Red flags can include lenders who:
- Provide complicated contracts with hidden fees
- Set steep fees for late repayments
- Use a one-size-fits-all approach to lending
- Offer steep interest rates
- Only offer long repayment windows
- Charge a lot for administrative services
- Don’t communicate well
- Are difficult to contact, especially once you have taken out a loan
If you do find reviews listing any of these issues then it is time to look for another lender!
Get Help Securing a Title Loan Today
As you can see, there are plenty of questions you need to ask before securing a title loan.
Answering these questions will ensure that you borrow within your means and find a lender who offers great repayment terms. So you can secure finances without adding to your stress!
Do you need help securing finances for your next big-ticket purchase? Then apply for a title loan with Quick Loans today. We’re happy to help.