Car title loans are secured installment loans that require that borrowers submit their vehicles as collateral. Also known as vehicle title loans or pink slip loans, these loan products are specifically designed for borrowers who need access to quick cash but can’t obtain a loan from a traditional financial institution, such as a bank or a credit union.
Car title loans offer several advantages over other types of personal installment loans. One of the best advantages is that they’re even approved for borrowers with poor credit scores and less-than-ideal credit history.
Other advantages of car title loans include the same-day or next-business-day direct deposit payouts, a fast application process, and the ability to keep driving your vehicle for as long as you’re responsible with your monthly payments.
Given their advantages, it’s evident that car title loans, like the ones provided by 5-Star Car Title Loans, can help alleviate the burdens accompanying temporary financial emergencies. If you’ve never applied for a car title loan, you’re likely wondering about the requirements necessary for obtaining one. Today, we’ll discuss legal requirements and necessary documents you require to successfully obtain a car title loan.
How Does a Car Title Loan Work?
A car title loan is a type of secured loan in which a borrower uses their car as collateral. However, instead of actually depositing the vehicle, the borrowers provide lenders with a title to the vehicle for the duration of the loan. That way, the borrower may continue to drive their vehicle while repaying the loan.
Once the asset has been provided, the lender will evaluate how much collateral is worth before approving the loan, usually granting a percentage of your collateral’s worth. To qualify for this type of loan, the borrowers must provide personal information, information about their vehicle, as well as proof of income as means of proving that they’re able to repay. Once approved, the lenders typically deposit the funds to the borrower’s bank account within 24 hours.
Auto title loans are usually short-term loans specifically designed for borrowers that can’t get funding through traditional financial institutions for whatever reason. Bad credit history is the most common reason financial institutions decline grants.
The main drawback of a car title loan is the repossession of the motor vehicle by the lender in case the borrower defaults on the loan.
How Much Can I Borrow With a Car Title Loan?
One of the main factors for determining a maximum loan amount is the fair market value of the vehicle used as collateral. You’re required to provide personal information and information about the vehicle during the loan application process.
This information includes your personal information, such as name and residency, and detailed information about your vehicle, such as make, model, and year. The lender can either inspect the vehicle personally, or ask you to upload detailed pictures of the vehicle during loan eligibility checks.
Depending on the condition of the vehicle you’re submitting as collateral and the vehicle’s fair market value, you can expect to get approved for anywhere between 25% to 50% of your vehicle’s value.
While there usually isn’t an imposed minimum loan amount (some states have this imposition), borrowers can get as little as $100 up to $50,000, depending on the condition of their vehicle. You can calculate the amount using an online Car Title Loan Calculator.
Pros and Cons of Car Title Loans
Car title loans are short-term loan products that come with their own unique benefits and drawbacks compared to other traditional and alternative financing options.
Pros of Car Title Loans
Thanks to the intense competitiveness in the financial market, lenders compete to serve a wide range of clients, allowing borrowers such as yourself to select and even modify the terms of their loan agreement to better serve their financial circumstances. Having said that, there are numerous advantages to title loans we’re yet to mention:
- They’re easy to compare — Most title loan lenders offer online services, allowing you to compare said services online and find the best car loan suited to your financial situation. In fact, there are many websites that compare loans by contrasting loan interests, terms, and associated fees and expenses.
- Simple application process — The majority of lenders offer 24/7 online access, so the whole title loan application process can be done from the convenience and comfort of your home. If you’re looking for a car title loan, head to the 5-Star Car Title Loans website, fill out the application forms, and wait for a call from one of our company’s representatives. This eliminates or reduces the need for personal visits to local branch offices.
- Fast approval — Most car title and installment lenders offer pre-approval services, which help the company determine your loan eligibility without affecting your credit score. Once you’re pre-approved, all that’s left is to provide the documents needed by the company to determine the loan amount and terms, approve the loan request, and deposit the funds into your account. This allows you to address any unexpected financial needs faster.
- Forget bad credit — While they’re marketed as loans that don’t require credit checks, the lenders typically do perform soft credit checks. However, these aren’t used to establish eligibility but to help lenders formulate better loan terms. You don’t need a good credit score to qualify for a 5-Star Car Title Loan—proof of income and your vehicle’s title will suffice.
- Flexible repayment terms — Lenders usually offer more flexible repayment terms, and they’re willing to work with borrowers to create a loan repayment plan that fits the borrowers’ budget and schedule. They can even offer to refinance or restructure your loan plan if your financial situation changes for the worse.
- Keep driving your car — You’re supposed to submit your car title in exchange for the loan as part of the loan application process. The lender will place a lien on the title, with the lender as the lienholder. This means that you can keep driving your car for as long as you’re making regular monthly payments. When you repay the loan amount, complete with interest and associated fees, the lien will be removed from the title.
- Cheaper Than Payday Loans — Short-term personal loans such as payday loans and cash advances are associated with exorbitantly high-interest rates. Car title loans, on the other hand, offer more favorable repayment terms, which makes them a great solution for your financial problems. In fact, loans serviced by 5-Star Car Title Loans are completely transparent and predictable, with no entrapment or prepayment penalties.
- Positive effects on your credit score — Repaying the title loan on time might positively affect your credit score, thus allowing you to obtain a loan at more favorable loan terms in the future.
Cons of Car Title Loans
Car title loans are designed specifically for customers who can’t or won’t obtain a loan from a traditional financial institution. Despite all the advantages associated with car title loans, these loans aren’t without risk. Here are some of the biggest drawbacks associated with auto title loans:
- Stricter approval requirements — While they don’t usually factor in your credit score for approval, car title loans come with other, stricter requirements. For example, you have to demonstrate the ability to repay the loan, which implies either being employed or having a pension. It’s also important to note that the actual approval is contingent on meeting the lender’s credit requirements and that the loan amount, terms, and interest rate may vary by consumer.
- Slightly high interest rates — Despite being secured, car title loans have slightly higher interest rates compared to standard loans. The loan amount, term length, credit score, and debt-to-income ratio primarily determine these rates. However, it’s crucial to remember that, compared to payday loans or cash advances, car title loans provide far better interest rates and loan conditions.
- Adverse effects on your credit score — Most car title lenders run soft credit checks without adverse effects on your credit score. However, missing installment payments and defaulting on the loan have consequences, and a declining FICO score is one of them. If you’re having trouble structuring your budget and you fear missing a payment on your loan, contact your lender and discuss refinancing your current loan with more manageable installments.
- You may lose your car — Defaulting on a car title loan has more repercussions than just a decline in your FICO score. Given that you agreed to use your car as collateral for the loan, the lender has the right to seize the collateral if you default. In the unlikely event that the value of your car isn’t enough to pay off the debt you acquired upon default, the lender may sue you to recover the shortfall. Thus, 5-Star Car Title Loan urges borrowers to pay their installments in a timely manner.
- Predatory lenders — Predatory lenders often use car title loans to exploit unsuspecting customers. The types of loans offered by these lenders are often associated with absurdly low loan amounts against the vehicle’s value and exorbitantly high-interest rates, with annual percentage rates going as high as 400%. Many borrowers have to roll over their loan into a new one, increasing their debt until they eventually lose their vehicle.
Car Title Loan Requirements
The process of obtaining a car title loan with 5-Star Car Title Loans is fairly straightforward. You can check it out in our How to Apply for an Online Loan guide, so you can obtain a loan faster and without any hassles or unnecessary complications.
The process basically consists of filing a loan application, submitting the required documents, and getting approved. In this section, we’ll discuss what requirements you need to fulfill to obtain a car title loan.
What Documents Do I Need for a Car Title Loan?
Before we dive into what documents you need to obtain the loan, we’d like to point out that borrowers have to be at least 18 years of age, ensuring that they’re legally able to enter into a contract and take on the responsibility of repaying the loan.
Laws regarding lending differ by state, so it’s always a good idea to check with the lender directly and with your state laws to make sure that you’re aware of the responsibilities and restrictions associated with personal loans. Let’s dive into what documents you might need for a car title loan:
A Lien-Free Car Title
A car title is a document that attests to the ownership of the vehicle. Besides containing the ownership information, it also contains the entire history of ownership, as well as vehicle details, such as make, model, year, odometer readings, and vehicle identification number (VIN).
A lien-free car title is a title that doesn’t have any outstanding loans or liens against the vehicle. This implies that the vehicle is owned by the person whose name is on the title and that no other parties have a legal claim to the vehicle.
The lender will use the title as collateral, so they want to ensure that they alone have the claim to the vehicle in case the borrower defaults on the loan.
You’ll need to submit a government-issued ID during the application process so that the lender can confirm your identity and that you can legally enter the contract. The most commonly accepted government-issued IDs include a photo ID, driver’s license, passport, or any other legally accepted and valid document used for identification purposes.
Proof of Income
There are a variety of documents you can submit to verify your income and demonstrate your ability to repay the loan. The specific types of income may vary by title lender, including recent pay stubs, tax returns, business tax returns, bank statements, proof of retirement, and in some cases, proof of government benefits.
Proof of Residency
You’ll need to provide proof of residency so that the lender may confirm that you live in the state in which the loan is being made and that it meets the state’s legislation regarding borrowing. Any document addressed to your name should suffice as long as it has a visible address. This includes rental and lease agreements, utility bills, property insurance policies (proof of insurance), property tax statements, or mortgage statements.
Proof of Vehicle Insurance
Some lenders might require proof of vehicle insurance to protect their interest in the vehicle in case of an accident or other incidents. Acceptable forms of vehicle insurance proof are insurance cards, policies, and declaration pages.
Some lenders require proof that the vehicle is registered for two reasons:
- A registered vehicle is road legal and thus safe to drive
- The vehicle registration attests that the vehicle is registered in the state in which the loan is being made
Depending on the lender, you may submit a valid vehicle registration card, vehicle registration certificate, or vehicle registration renewal notice. You also need to make sure that the vehicle registration is valid and up-to-date during the duration of the loan.
What Are the Vehicle Requirements for a Car Title Loan?
Different lenders may have different requirements when it comes to the vehicle itself, so it’s a good idea to contact the lender directly and inquire about any specific requirements. Some lenders only accept vehicles that are less than a certain number of years and have a certain number of miles.
Some lenders insist on a physical inspection of the vehicle to determine its value and conditions, while others only insist that you send pictures of the vehicle. Lenders may also require you to install a GPS device during the duration of the loan and for the vehicle to have a valid registration and insurance.
However, all lenders require that the vehicle has a lien-free title and that the person looking for a loan is the sole owner of the vehicle.
What to Look For in a Car Title Loan Company
When choosing a car title lender, it’s important to consider stuff like the company’s reputation, interest rates, clarity of contract, and several other factors, to ensure you’re getting a fair deal.
We already mentioned predatory lenders and all the implications associated with obtaining loans from dishonest businesses, so it’s really important to choose a reliable and reputable lender. Online reviews are a good starting point, so make sure that you do your homework before applying for a loan with a specific company.
No Prepayment Penalties
Prepayment penalties are fees charged by the lender for paying off the loan before the loan term is over. These fees prevent the borrowers from paying off the loan early and saving money on interest charges, thus allowing lenders to capitalize on the high-interest rates they impose.
Obtaining a loan with no prepayment penalties, like ones serviced by 5-Star Car Title Loans, allows you to repay the loan earlier and thus minimize the amount of interest you’d have to pay. In fact, 5-Star Car Title Loans encourage customers to pay the loan often and early to avoid falling behind on payments, thus avoiding any additional penalties and fees.
Additionally, loans serviced by 5-Star Car Title Loans come with no prepayment penalties and no hidden fees, allowing for greater transparency and more flexibility regarding repayment.
Easy Application Process
Some lenders offer a simple and easy application process that doesn’t require a physical branch office visit. In most cases, you can pre-apply for the loan online by filling out the basic information requested by the company.
However, you’ll likely have to visit a branch office once the lender gives conditional approval of the loan. At that point, you’ll likely have to visit a branch office and submit the aforementioned required documents.
Some lenders, on the other hand, allow you to complete the entire loan application process online or via courier services, starting from the application, document submission, contract signing, and subsequent payout.
Accepting All Credit Scores
A credit score isn’t a determining factor for obtaining a loan with a car title loan company. The credit score is, instead, used to determine loan amount and loan terms; the better the score, the more favorable the terms.
Most lenders (even those marketing to customers with bad credit) have a minimum credit score requirement of 580, which is regarded as a bad credit score. Some lenders offer their loan products to borrowers whose credit rating goes as low as 500.
The interest rates associated with car title loans are typically derived as percentages of respective loan amounts, added to the loan balance each month. The interest rate on a car title loan can run from 25% to an exorbitantly high 300% or even higher.
More favorable terms and rates are reserved for the most qualified loan applicants. Fortunately, most lenders allow you to pre-apply and learn what interest rates you’re eligible for before you actually apply and obtain the loan.
Alternatives to a Car Title Loan
There are several viable alternatives to car title loans borrowers might want to consider before actually obtaining a car title loan. These include:
Bank loans pose very little risk for the borrower, as they’re not using any collateral, so they don’t risk immediate property repossession upon defaulting. However, banks rely on the borrower’s creditworthiness and the ability to repay the loan as the main eligibility criteria.
This allows traditional lenders to provide exceptionally low-interest rates compared to car titles. Still, they do require at least a good credit score (FICO higher than 670) to approve the loan.
Payday loans are unsecured loans, and as such, they have higher interest rates and shorter repayment terms; they’re typically due on the borrower’s next payday. We highly recommend avoiding these unless obtaining them is absolutely necessary.
Credit Card Cash Advance
Credit card cash advances are akin to short-term loans, as they also provide quick access to cash. However, compared to car title loans, they typically offer lower interest rates, require no collateral, and have longer repayment terms since the traditional financial institution actually grants them.
Car title loans are a fantastic loan option for individuals in need of quick funding, whether they’re dealing with a financial emergency, outstanding medical bills, debt consolidation, or some other unexpected financial need.
If you want to learn more about car title loans, visit 5-Star Car Title Loans, or call us at (888) 309 0994. The company specializes in car title loans and installment loans online and will do its best to meet your needs and even help you on your journey toward financial well-being.