Colateral Loans with Car Title Loans California
Collateral is something (usually a property) that helps you secure a loan. What this means is that when you approach a lender or any financial institute for a loan, offering your asset as collateral to secure the loan, the lender has the legal right to seize your asset and sell it to recover the loan amount if you fail to comply to your agreement of repaying the loan.
The lender is taking a risk to get you funded, hence the need for a collateral. So in plain language, a collateral insures the lender in case you fail to pay back your loan. Most of the time, a collateral makes it easier and improves your chances of getting a loan (larger cash amount) – especially form a bank. A collateral is more like an alternative peradventure a borrower defaults.
Then, the lender places a lien on the collateral as the interim owner. A lien is the lender’s legal claim to a collateral. And if you fail to completely pay off the loan, the lender assumes full ownership of your collateral. The proceeds from the sales of the asset – collateral will then serve as compensation for what’s left in the loan.
Collateral proves a borrower’s commitment to repaying a loan, and we can see collaterals in 2 different lights;
- A valuable item you pledge to secure a loan
- A Plan-B against your inability to clear
Typically, in a collateral loan agreement, you are saying YES to your lender taking over your asset if you fail to repay your debt according to the terms in the contract agreement. So if you are considering taking a loan using your asset as collateral, it is important you understand how collateral works.
Loans and What They Are
According to Investopedia, a loan is a term that describes the act of offering something – usual cash to another party with the expectation of receiving back the principal cash plus some interest in the future.
It is always the person who need cash that initiates the system, receiving cash from the lender, accepts the cost of borrowing the cash, and is under obligation to pay back the amount completely at a given time.
The cost of taking out a loan is the interest rate – an incentive that commits you to the loan terms of the agreement, the amount of cash you borrow is the principal, and the time given for complete repayment is the loan period. The loan amount you can borrow depends on some factors like; your income, credit history, credit status and the need you intend to settle using the loan.
Loans are issued by loan providers. These providers could be banks, credit unions, credit card companies and other lending financial institutes. Car Title Loans California, for example, is a loan provider that offers collateral loan services in the form of an auto title loan.
Although this article is focused on collateral loans, there are several other forms and types of loans. Understanding the options and which one best suits your need and plan are paramount.
Types of Loans
Loans come in several forms and shapes. Loans can be secured or unsecured, open-ended or close-ended.
- Secured Loans and Unsecured Loans
Secured loans are loans that are secured by a collateral. That means they depend on an asset as collateral. The asset is for the lender to possess on the occasion of a default. And since secured loans need collateral, their interest rates are lower than that of unsecured loans.
In most cases, the asset you are tendering would be evaluated to know its value, and determine the loan amount you can borrow a common example of a collateral loan is a mortgage loan or a title loan.
Unsecured loans, on the other hand, don’t require collateral. They are characterized by higher interest rates and are not that easy to access. Unsecured loans majorly depend on your creditworthiness, credit history, your income to qualify.
- Open-Ended and Closed-Ended Loans
Open-ended loans are loans that have no limit on the amount you can access. That is to say, in an open-ended loan, you can borrow over and over again. Example of such loans is cash advance through credit cards. Each time you use the credit card, the credit decreases. And when you make payments, the credit increases, allowing you to continue using the same card over and over
While closed-ended loans are loans you can only borrow one-time and can’t reuse after you repay. An example of such loans is mortgage loans and student loans.
Why Some Loans Need Collateral
The loan market is a risky venture, and lenders need a cushion to against such risk. More like an insurance in case, things go sideways, and collaterals somehow minimize the risks of accepting you as a borrower. This is why some loans require collaterals.
In a situation where your credit is unimpressive, or you haven’t yet got much financial structure that a potential lender could look at and consider you worthy for a cash advance, then tender an asset that is worth the amount of cash you want to loan as collateral increases the chances of your loan request being granted.
What are Collateral Loans?
When your current financial status or credit history makes it impossible for you to secure a loan, a collateral loan might just be what you need.
Most times in life, you get destabilized by unexpected circumstances that require urgent financial attention. In such cases, a quick loan might just be the ideal solution to handle such unexpected expenses. However, getting this loan when you are deep in debts or have a poor credit might be quite impossible. This is where a collateral loan is beneficial.
Collateral loans are a type of loan that requires you – the borrower to leave something of that is of value with your lender as a surety that you are committed to completely repaying the loan you collected. The valuable asset you leave with the lender is what gives the lender the confidence that you will clear your loan debt in due time.
When you fail to pay off the loan, your lender who still has your asset may decide to sell it off to recover the lost funds due to the loan you collected. So you can see that a collateral loan is a form of secured loans. As you read on, you’ll discover that car title loans are the most popular and easily accessible type of collateral loan.
Types of Collateral Loans and Assets You Can Use to Get One
Collateral loans come in several forms, but these forms all require one major item; ‘collateral’. According to SBA on the US Small Business Administration, there are three basic types of collateral loans. Listed below are the types of collateral loans;
- Personal Loans: these loans sometimes exist as both secured and unsecured loans. When they are secured, they are backed by collateral. Properties or assets you can use to secure a personal loan include; landed properties, vehicles, home equity, bonds or paper investments, collectibles or other valuables, paychecks or your savings account.
- Business Loans: these are loans you can collect to start up a small business or support an existing one. The cash collected could be used for equipment purchases, expansion or human resource hiring. And the collateral could be a personal asset, insurance policies, equity in the business or expected earnings from the business.
- Auto Loans: this is a common form of the loan that most folks subscribe to. Usually, a car or vehicle could be used as collateral. Other collaterals are; the car you already own, a car you are still paying for, auto/home equity or some form of paper investments of value. Most of the times, the value of the asset has to be determined through an appraisal before you can get the loan.
How Do Collateral Loans Work?
By now, you must have realized how collateral loans could be a lifesaver when you are dealing with those difficult moments life throws at you. With an asset you can offer as collateral, you don’t have to bother about your credit (whether good or bad). And in most cases, there are no long application processes involved. So when the need for the cash is urgent, a collateral loan is the answer.
Getting a loan using collateral takes the stress of the entire process, and makes it a lot easier to access a collateral loan. To get a collateral loan with ease, you need to understand how it works. The way collateral loans work is simple and fast – a solution when traditional lenders deny your loan application.
This is how;
Step 1: Application
To get a collateral loan, you have to apply. Here, you provide your personal information as well as information about the collateral you want to tender. In recent times, the application could be done with ease, from the comfort of your home or office – online.
The personal information you are to provide include your name, contact details as well as other basic bio-data. Sometimes, you also provide information about your monthly income. After that, you then provide details about the asset – collateral.
Step 2: Verification
After submitting your application, a collateral loans expert will quickly process the application and verify/validate the information you have provided. The process is usually fast, and you don’t
have to wait for days, especially when there are no boring background checks involved.
A responsible lender would want to evaluate your asset to ascertain its worth, and also know how much you can borrow.
Step 3: Approval
After your information has been verified, You’ll get your collateral loan approval. you’ll then have to sign a contract in agreement to the terms stating the loan estimate as well as when you are to pay off the loan, with interest.
The Loan Amount Versus the Value of Your Asset
The way a collateral loan works is that the collateral is your lender’s compensation in case you default. This means that you cannot borrow a cash amount that is way higher than the value of the collateral.
Most times, lenders choose to offer cash amounts lesser than the value of your asset (at least 50% of the collateral’s worth). No hard feeling, it’s just a way a typical collateral loan lender chooses as a guarantee of getting back their money in the event of your failure to pay back what you borrowed.
When you apply to borrow cash via a loan, using a collateral, you will be issued a quote for the loan amount you are eligible to access (usually expressed in percentage). For example, if your asset is worth say $50,000, you may be allowed to collect up to 80% as a cash advance. What this means is that 80% of your asset’s worth is the acceptable loan-to-value ratio.
Remember, you are responsible for the full loan amount. So peradventure the amount recovered from the sales of your asset turns out to be lesser than what you owe, your lender could still bring legal actions against you to collect the balance.
Collateral Loans on Cars or Vehicles
Since your car can be used as collateral for a loan, we can say that car collateral loans are a form of collateral loans. You can use your car or vehicle as collateral in an effort to secure a loan.
Getting a cash advance from conventional lenders like banks and credit unions are becoming more challenging and difficult as years go by. The conditions are getting more stringent, and the criteria are becoming numerous. If you own a car or vehicle, you can use it to acquire a collateral loan. When the collateral involved is your car title, it is called a car title loan.
To get a collateral loan on your car, you must own the car outright, or paid more than half of the car’s cost price. You must also have the clear title of the car in your possession – with no lien on it. this does not mean that you will not use your car. Rather, you only give-up the documents that show your ownership of the car in exchange for a cash loan, while you keep driving your car as you will.
Car collateral loans, auto title cash advance, car title loans or pink slip loans all mean the same thing. And getting a title pawn loan is easy and fast – takes just 24 hours or less. Car Title Loans California offers title loan services to US citizens resident within California and its environs. Visit our website today to apply online.
There are some title loan requirements we need you to provide during and after your application. We also appraise your car with Kelly Blue Book to know how much your car qualifies you to access, analyze your monthly income, and run your credit through Experian to reach a payment program that will suit your financial status. You can visit our blog to know how car title loans work in details.