Understanding Title Loans

Title loans are a fairly common type of loan, in which the collateral the borrower puts up against the value of the loan is the title of his or her automobile. Because the loan is backed up by nothing but the value of the car itself, these loans are usually smaller and more short-term than other forms of lending arrangements. Additionally, because of the relatively low overall value of most cars, the interest rates are often considerably higher on title loans than on other agreements.

The Benefits

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One of the biggest benefits of a title loan is that it offers the borrower a quick sum of money on relatively small collateral. Because the car is put against the value of the loan, there is no need to check for credit history, cutting down on the time it takes to issue the money. Most such arrangements can be drafted in as little as fifteen. Additionally, the sum of money can be quite low, sometimes as little as $100.

The Negatives

Many states have caps on the maximum that can be offered on these forms of loans, often between $2,000 and $5,000. Additionally, they have incredibly high interest rates, to counter the lack of credit backing up the arrangement, often anywhere between 30% and 600%, depending on the circumstances of the lending agreement and the laws of the state.

Many lenders require borrowers to have full insurance on their cars, in order to effectively protect the value of the vehicle.

One of the most significant problems of the title loan is that it has the potential to generate a massive amount of interest debt, and the borrower can easily potentially go into debt if the money is not quickly paid back.

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