The Good, Bad and Ugly About Accessing Cash Through Title Loans

what is a title loan, what to be aware of

Let’s face it. Emergencies can happen in your life. And they seem to come at the worst imaginable times. Your available resources seem to be practically non-existent. And the traditional options for a loan are simply closed off. Much like 43 percent of other Americans, your credit score may simply hold you back from qualifying for a bank loan. This is where people start to think about title loans.

There’s numerous hard money quick loans available from any number of providers. The problem is not only can interest fees be exorbitant,  some are downright dangerous.  And paying more than the loan itself in the long term can far outweigh any short term benefit.

You may have heard of title loans as a potential alternative to traditional lenders. But what is a title loan? And is it right for you?

How Do Title Loans Work?

A title loan is essentially a quick cash advance loan for a short period of time in which the title to a vehicle (be it your car, RV or bike) serves as collateral until the loan is paid in full. It’s typically a 15-30 day loan, although some lenders may extend the amount for up to a year. And for homeowners with bad credit who don’t want to access home equity,  they can seem like a tempting proposition. In fact, title loans can seem like their best option—if not their only one. They typically don’t require credit checks, the process is relatively painless (with many online loans being available) and most importantly… you get to keep your vehicle. It’s been estimated at least 2 million Americans do so annually.  There’s just one problem.

The title loan interest rate.

Typically, title loans are taken out for approximately 25 to 50 percent of the value of your vehicle. But the interest rate of the title loan frequently climbs well into the triple digits. Which, if you’re willing to pay for it, can seem like instant relief. The problem is… can you afford the interest payments?

Often, the lender may offer to “roll over” the cost of the loan for an additional 30 days—for additional fees and a surcharge in your title loan interest rate. And if you’ve ever had to face debt before, it can lead to a vicious cycle of non-stop borrowing that only ends when your car is repossessed.

Does it seem unethical? It should. In fact, title loan lenders are banned in 33 states.

Utah is not one of them.

How Car Title Loans Work

Car title loans are probably the most frequent form of title loans, although a lender can also accept motorbikes, RVs, boats—anything but a horse and buggy. Most lenders will insist you have at least 50 percent auto equity, if not own it outright. For reasons which will become clear shortly.

Your title is still a legally binding document declaring ownership of your vehicle. Many lenders will require they place both GPS devices as well as starter interruption devices on your car as a safety precaution. Some may insist on making an extra set of keys. And while their reasons may seem valid, they’re still depending on you to pay back the loan with interest in full in the allotted time period of your contract. If you can’t? Your vehicle is theirs, legally attested to by your signature.

And yes. It will affect your credit rating.

Online Title Loans

Like most online loans, all you really need to take out an online title loan is to upload a photo ID, proof of income, a copy of your car title and the application. A legitimate online lender may have you wait no more than a day or two so they can appraise the value of your vehicle. Some may not have you wait at all—and can instantly deposit your loan into your bank account. It’s fast. It’s simple. And it’s from the safety of your home.

In 2017, the FBI released their third annual Internet Crime Report in which it was revealed that Americans lost over $1.4 billion as a result of online fraud. Over $10 million of that amount was reported to occur in Utah. So while it may seem like a quick loan, the average 25 percent monthly interest rate of a title loan (which translates to 300 percent APR) may ultimately be costing you significantly more.

Title Loans And Utah

Title loans in Utah are governed by the Title Lending Registration Act which requires title loan companies to consider the ability of the borrower to repay their loan. This will typically include current and expected income, current debt and employment status. But all that’s required is a signed statement from the borrower. You aren’t legally required to provide bank statements or employment verification. You’re really only as good as your word.

The good news? Unlike many other states, there’s really no set limit on the amount a Utah title loan company can lend you. Most reputable lenders nationally set the terms of the loan at 50 percent. If you have a car estimated with a Kelly Blue Book value of roughly $75,000, a title loan company in Utah could hypothetically lend you 90 percent (a little over $67,000.)

The bad news? There’s also no cap on what they can charge you for interest. Remember, the national title loan interest rate is 25 percent monthly (or 300 percent annually.) In Utah, that same title loan company could also hypothetically charge you a 50 percent annual interest rate. And that’s on top of the loan.

Is There An Alternative To Title Loans?

If you’re looking for a quick hard money loan, yes. But you’ll still be paying high interest. In fact, very similar levels of interest.  And some may even require credit checks, which may be the reason you’re looking for a quick loan in the first place.

At Gary Buys Houses, we’ve developed a unique alternative. It’s called our Sell Now, Move Later program. It allows you to sell your home quickly, with multiple options of renting or even purchasing back. We’ve been working with thousands of Utah residents for over ten years now, and we can work with you to ensure you a quick, hassle-free loan—in some cases, by the very next business day.

In short? Know what you’re looking for with a quick cash loan. They can seem like a great temporary solution. But temporary can sometimes be a longer time than you think.

A much longer time.

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