- All About Title Pawns – A Guide Regarding Title Pawn in the U.S
- What Is a Title Pawn Loan?
- The Pros and Cons of Title Pawns
- The Pros
- The Cons
- How Does a Title Pawn Work?
All About Title Pawns – A Guide Regarding Title Pawn in the U.S
Title pawn loans are the type of short-term loans that allow borrowers to use a vehicle as collateral in exchange for a loan. Since they can’t actually deposit the car, the borrower provides the lender with a title to the vehicle in exchange for the loan, which the lender holds onto until the loan is repaid in full.
This article will discuss title pawn loans, what they are, and how they work. We’ll also walk you through the application process and list the requirements you need to fulfill in order to secure a title pawn loan.
What Is a Title Pawn Loan?
Most people associate title pawn loans with pawnshops and pawnshop loans. While there are admittedly some similarities between the two types of loans, pawnshops grant loans while taking valuables as collateral, while title pawn loans rely on car titles as securities.
Title pawn loans, also known as car title loans or auto title loans, fall under the category of secured loans. The way loans work is that lenders usually want some form of warranty that you’ll repay the loan. When it comes to unsecured loans, the lender will perform a credit check to establish your creditworthiness.
Individuals with a good credit score are considered financially more responsible and thus present a lower risk for the lender. The higher your credit score, the lesser of a risk you are, and the lenders will provide you with more competitive interest rates and loan terms. However, what happens if you have bad credit?
People with bad credit usually aren’t eligible for an unsecured loan, but that doesn’t mean they’re immune to financial hardships. Secured loans (car title loans included) don’t rely on your credit score to establish your creditworthiness. Instead, they rely on collateral.
The role of collateral is to reduce or eliminate the lender’s risk of losing money in case you can’t repay the loan. In the case of car title loans, you use your car (or other types of vehicle) as collateral, and the lender gets to seize your vehicle if you default.
However, since you can’t actually deposit or pawn your vehicle to secure a loan, you provide the lender with the title to the vehicle. The lender then places a lien on the title, signaling that a loan has been made against the value of the vehicle.
The title you’re submitting as collateral has to be lien-free, as it assures the lenders that they have sole claim to the vehicle in case you default. Car title loans are a viable way to get some fast cash in an emergency, but you can’t get one from a traditional financial institution, such as a bank or a credit union.
The Pros and Cons of Title Pawns
There are several things you want to consider when securing a title pawn loan, and weighing various advantages and drawbacks is particularly important. There are some aspects or elements associated with the loan that may differ from one lender to another. Discussing some pros and cons is a good way to offer some insight into what to expect from title pawn loans.
The sheer competitiveness in the title pawn loan market means that lenders compete amongst themselves to cater to a broader range of customers, allowing you to pick, choose, and even customize a loan to better meet your financial needs. Here are the benefits of car title loans:
Most title lenders offer online applications and pre-qualification, most of which can be completed from the convenience and comfort of your home. The entire pre-application process takes minutes to complete, and all you need is a smartphone or a computer with internet access.
Once you’ve filled out your application form, the company’s loan agent will call you to help you finalize the application and further establish your eligibility for a loan.
The pre-application and pre-qualification allow you to find out whether you’re eligible for a title loan. In most cases, pre-qualification involves a soft credit check. Unlike most credit checks, a soft credit check won’t adversely affect your credit score in any way, even if you’re obtaining a loan with bad credit.
The best part is that you can back out of the loan during pre-qualifications without harming your credit rating.
One of the most significant advantages associated with these loans is the ability to shop around. You can, and you should, browse and compare personal loan options offered by different lenders that might be best suited to your financial situation.
There are various loan-centered websites available online where you can refine your search and compare the expenses and interest rates of loan products offered by different lenders. Additionally, some services allow you to submit a single application and receive offers from numerous lenders.
This is significantly more convenient than having to physically go to a traditional financial institution or a branch office to have your loan serviced in person.
Forget Bad Credit
Most secured loans, especially car title loans or other types of online loans, are specifically designed for individuals with bad credit, so you don’t really need a good credit score to obtain these loans.
That doesn’t mean that the lender won’t inquire into your credit report and credit history with the credit bureau. Quite the opposite, actually. Even though your credit rating isn’t used to determine your eligibility, it’s used to formulate the appropriate loan terms, installments, interest rates, and loan amounts.
If you’re new to credit, some lenders may even go beyond your credit report and look into your financial conduct by analyzing your bank account activity.
The good thing about car title loans is that you get to keep driving your car for the duration of the loan. The lender will be listed as the lienholder on the title once you’ve submitted the vehicle’s title in exchange for the loan.
All of this means that you still get to drive and use your car as long as you maintain monthly payments. Once you pay back the loan balance, along with interest, the lien will be removed.
Improve Your Credit Score
The majority of lenders will report your debt repayment (or default, for that matter) to a credit bureau, so making timely installment payments could potentially improve your credit rating. That way, you’ll be able to negotiate better loan terms and interest rates the next time you have to borrow money.
No Hidden Fees
Most lenders don’t set up their customers for failure by making them pay exorbitant payments or extra fees hidden in the fine print. In fact, many don’t enforce any prepayment penalties, allowing customers to repay the loan sooner and save some money on interest.
Filling out the loan application only takes a few minutes, and the approval process is typically done in a few hours. As a result, most lenders offer same-day deposits or deposit the fund within 24 hours following loan approval. Funding may take longer if you submit your application on the weekend or during the holidays.
Cheaper Than Payday Loans
Payday loans or other unsecured short-term personal loan solutions sometimes have outrageous annual percentage rates and high-interest rates. In fact, automobile title loans are completely transparent and predictable because there are no traps like required minimum loan amounts or prepayment fees.
Combined with the flexibility and customization of your loan terms, these features give you a great deal of financial stability.
For all of their advantages, car title loans also have some drawbacks—most of which are listed below:
Stringent Approval Terms
Even though they’re marketed to borrowers in need of fast cash or those with poor credit scores, car title loans generally have stricter requirements. One of them is having a job because you have to show that you can pay back the loan on time.
This applies to retired people as well; you must demonstrate your ability to repay the loan, which you can do using your pension documentation, SSA documents, and retirement account statements.
Higher Interest Rates
Car title loans have slightly higher interest rates than standard loans. These are primarily determined by the loan amount, your credit score, your debt-to-income ratio, and the period of the loan.
However, it’s crucial to remember that compared to payday loans, long-term car title loans have far better interest rates and terms. Even though rates may be somewhat high across the board, 5-Star Car Title Loan provides competitive rates to qualified borrowers.
Adverse Effects on Your Credit Score
As said earlier, the majority of auto title lenders run light credit checks that have no negative impact on your credit score. Instead, they’re used to determine your repayment terms and other details.
if you miss payments or default on a loan, it will adversely affect your credit score. Likewise, prompt repayment can have a favorable impact on your credit score, and when you pay back your loan on time, your credit score is likely to rise.
That being stated, contact 5 Star Car Title Loans to talk about refinancing your current loan with more manageable monthly installments if you’re having trouble organizing your budget and you fear missing a payment on your loan.
You Might Lose Your Car
Defaulting on your loan has other repercussions besides just lowering your credit score. Given that you agreed to use your car as collateral for the loan, the lender has the right to seize it if you don’t make payments. 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.
How Does a Title Pawn Work?
Pawning your car title gives you access to quick, emergency funding to cover whatever financial emergency you might’ve encountered by using your car as collateral. As such, car title loans are usually short-term loans, but some lenders offer more long-term options.
You submit your car title in exchange for the loan; the lender assesses the vehicle and grants you a loan amount that corresponds to the fraction of the vehicle’s value—it’s usually 40%.
Once the loan is approved and the funds have been loaded into your banking account, you can use the funds in whichever way you see fit. You’ll continue to drive your car for the duration of the loan or until you repay it entirely, after which the lender will remove the lien from the title. Here’s how to get a car title loan:
Step 1: Apply for a Car Title Loan
Applying for a car title loan with 5 Star Car Title Loans is pretty straightforward. Simply head over to the company’s website and fill out the loan application form. Online applications are rather convenient, as they can be completed from the comfort of your home.
To apply, you’ll need to provide the lender with your personal information, including your name, address, contact information, and the vehicle’s make, model, and year. Once submitted, the information will be reviewed by the company’s agent, and if everything checks out, they’ll provide you with conditional approval.
Step 2: Complete the Application
Once you’ve been preapproved for the loan, the lender will inquire about your credit score with the credit bureau. This inquiry is a soft credit check, and it won’t adversely affect your credit score in any way.
It’s important to note that your credit report isn’t an eligibility factor; it’s used to determine the appropriate interest rates and loan terms based on the information you’ve submitted on your pre-qualification form and the subsequent review.
Once you’ve been preapproved, the lender will request that you submit the required documents for further review. These documents include the following:
- Government-issued ID — Lenders have to confirm your identity and age to ensure that you’re old enough to legally enter the contracts and assume the responsibility for repaying the loan. These documents may include a state-issued photo ID, a passport, a driver’s license, and any other document that can be used to identify you.
- Proof of Residence — Lenders have to ensure that you’re living and residing in the state in which the loan is being made to avoid any noncompliance with the state’s laws that regulate lending. Any document with your name and address on it should suffice, including utility bills and lease agreements.
- Proof of Income — While some lenders approve loans without any income verification, most lenders require proof of income that would demonstrate your capacity to repay the loan. This includes employment contracts, bank statements, pay stubs, pension statements, and tax returns.
- Qualifying Title to the Car — By “qualifying,” we mean a “lien-free” title, which serves as collateral. Lien-free title assures the lenders that only they have the sole claim to the vehicle should you default on a loan.
- Car Insurance — Car insurance attests that the car is road-legal, safe to operate, and registered in the state in which the loan is being processed.
- Photos — This varies from one lender to another. Some lenders require photos of the car, while others insist on a physical vehicle inspection. Sending in car photos helps the loan company evaluate the vehicle before even sending a representative to perform a physical inspection.
Most of these documents need to be submitted at the local branch office, but some lenders allow customers to use courier services and mail, though the latter two significantly impact the approval and funding time. Once the company’s loan agent reviews all the documents and approves the loan, they’ll contact you with a loan offer based on the information you previously provided.
Get Your Funds
If you find the company’s loan offer satisfactory, signing the loan terms of the agreement is pretty simple. You must provide the lender with an active banking account to receive the funds. If you happen to lack an active banking account, the lender will provide you with a MoneyGram reference number.
In either case, the funds will be loaded into your bank account/MoneyGram within 24 hours of approving the loan. All you have to do now is focus on repaying the loan.
Here are some of the most frequently asked questions regarding title pawn loans:
Q: What are the two disadvantages of a title loan?
A: Two major drawbacks associated with title loans are the potential loss of property and the negative impact on your credit score. Both drawbacks are triggered if you fail to pay your installments and default on the loan.
Q: What is the most you can get on a title loan?
A: The maximum amount varies from one lender to another. 5-Star Car Title Loan approves loans of up to $50,000, though the value of your collateral dictates the actual value of the loan.
Q: What is the lowest you can get on a title loan?
A: This also varies from one lender to another, though in some cases, special state laws regarding the minimum loan amount apply.
Q: Do title loans hurt your credit?
A: Only if you default. A lender typically performs soft checks which don’t show on your credit report. However, they can also increase your credit if you repay the loan in time.