Everybody has been in a situation where they have been strapped for cash and unsure of what their next steps should be. Considering the fact that the average American has less than $5,000 in savings, finding yourself facing a large expense may mean that it won’t be able to be paid for out-of-pocket. When this occurs, many people often consider taking out some form of debt, with title loans being amongst the most common of choices. Learn everything there is to know about title loans, including their pros and cons, to determine if this is right for you.

What is a Title Loan?

For those who are unfamiliar, a title loan is a unique type of loan that is offered by lenders. It is a short-term, high-interest loan that requires a person to use their car as collateral on the loan. Therefore, a title loan is a secured loan, as opposed to unsecured. A major reason many people consider a title loan is due to the fact that their usually are very few requirements associated with taking out the loan, meaning even those with poor credit stand a chance at getting approved.

How Does a Title Loan Work?

Those looking into how to get a title loan in Los Angeles, New York, Miami, or any other major city should first consider how the process actually works. First and foremost, the person applying for the loan needs to own their vehicle completely, as this translates to owning the title of the vehicle. When a title loan is borrowed, a borrower hands over the title to their car in exchange for the loan.

The lender then sets the terms of the loan including the tenor, the total amount loaned, the total amount to be paid back, and more. While you are allowed to drive your vehicle with the loan still outstanding, failing to repay the loan will give the lender the legal right to potentially seize your vehicle. The reason title loans are so tricky is due to the fact that the repayment period is often only one month, and the interest values out to around 300% on average. This is why it’s crucial to only consider taking out a title loan if you are absolutely certain you will be able to make the lump sum required payment at the end of the loan period.

Pros to Taking Out a Title Loan

Given the fact that title loans often come with a far higher interest rate and a shorter repayment period than other loan types, it’s worth looking at the benefits that may exist with this loan. The most prominent of these include:
– Title loans often have very few requirements during the application process, making it a tempting option for those with little credit history
– A title loan can often give a person access to larger sums of money in a quicker period of time than other loan types

Cons to Taking Out a Title Loan

On the other side of things, it’s also important to consider the alternatives to a title loan in case one does the math and figures out that it is not the right choice for them:
– The interest rate associated with a title loan is astronomically high compared to other loan types
– A person stands to lose the title of their vehicle if something comes up and they are unable to make the payment required
– Title loan shave short repayment terms which make it difficult to meet the payment on time
– Title loans often have additional hidden fees that are hard to find in the contract

Alternatives to Title Loans to Consider

Assuming you have weighed all of your options and determined that a title loan may not be the best choice for you, rest assured knowing there are other options on the table. The following alternatives are excellent option to keep at the top of mind:
1. Personal Loans: A person loan is a short-to-long term, often unsecured, loan that provides a borrower with fair credit access to $10,000 to $100,000 on average
2. Credit Cards: For some smaller emergency expenses, it may be worth putting the expense on a credit card
3. Loved Ones: Rather than going into debt trying to meet your financial obligation, consider figuring out if anyone in your family would possible help

The Bottom Line

While a title loan may not be the best choice for everybody, those who can afford to pay it back within a short span of time may find use from it. Evaluate your current financial situation in order to ensure that you are completely positive that you can pay back the loan without incurring the sky-high interest that typically comes with it. The last thing anybody needs is to pay a large bill only to end up with an even larger amount of debt owed.