In spite of the often negative connotation of title loans, this type of loan can actually be used productively. However, there are certain rules to live by in order to prevent being caught up with debt which is more than what one can handle. With proper handling and calculation, title loans can actually be a lifesaver during very tight financial situations.
What is a Title Loan?
A title loan is a type of secured loan wherein a car title serves as the collateral. It allows the car owner/borrower continuous use of the vehicle as long as loan payments are made. Successful completion of loan payment will result to the return of the car title to its owner. Failure to make good in the promised payment allows the lender to possess the car usually for the purpose of selling it to pay off the outstanding debt.
Title pawns typically answer immediate financial needs of borrowers. There is however the reality of a much shorter term, higher interest rate, and the lien on the car. The attraction of title loans lies in fast processing, absence of need to check credit history, and the continued use of the car. There is the risk of losing the car and being burdened with a bigger debt when the borrower defaults on payment thus the need to use the loan facility carefully.
Rules to Observe in Taking out a Title Loan
The main purpose of taking out a title loan is to help a borrower tide over a particular tight financial condition. The idea is to have the solution required without losing the car. Faithful payment of the amount agreed upon is the primary goal.
Since the intention is to save the car, the borrower must be expecting a reliable source for making payments. This would come in the form of a regular salary or regular income from other means. Borrowing without any expected source of making payment creates more problems than solutions.
The Title Loan Rationale
Auto title loans are as controversial as payday loans in many states in the US because of the high interest rates. It cannot be denied however that a title loan is able to answer specific monetary needs of consumers thus its continued existence. Lenders are justifying the high interest rates with the degree of risk associated with lending money to people who are already experiencing financial difficulties. If used for the purpose for which it was intended and availed of with a clear source of payment, the unnecessary ballooning of interest will be avoided.
About the Author:
Joseph Francis is a professional blogger who provides information and advice on car title pawn and car title loan. He writes for TitleMax, a title loans store with locations nationwide.