As a young adult, chances are you don’t have much of a credit history built up. This is incredibly common and is not something to be ashamed of. That being said, without a substantial credit history and a high credit score
, banks and other traditional lenders are less likely to provide you with financial assistance should you need to pay for an overdue bill or medical emergency.
If you recently purchased a new car and paid for it upfront with cash, you probably sleep well at night because you don't have to worry about making a car payment every month. Then you should consider car title loan as your second option to receive the emergency money you need!
So, you have an electric bill that's three months overdue, and it needs to be paid in a week or your lights are turning off, you could be desperate for some extra cash. Because you paid for your car upfront with cash, you don't have much laying around to cover bills or unexpected expenses. If you try to apply for a traditional bank loan, most won't even give your application a fair chance if you don't have a credit report to back it up to show that you are reliable and a trustworthy borrower. This can seem like a really desperate time, and the options are slim. So, what should you do?
Consider Car Title Loan
A title loan is an easy way to get the cash you need now even if you don’t have good credit or even any credit.
Millions of Americans use title loans every year to pay their bills and if used responsibly, can be a great option for those that wouldn’t qualify for a bank loan.
The alternative to applying for a title loan in a desperate situation like facing overdue bills is devastating. If you don't pay your bills you could potentially be evicted from your apartment, have your cell phone shut off, leaving you without communication with your loved ones, and in a worst-case scenario, you could end up on the street. That is something that shouldn't happen to anyone, so when times are tough, and you're desperate, a title loan is the best option available for you.
How Title Loans Work
Applying and securing a title loan is incredibly simple. It is a loan that is leveraged against your car. The lender will ask that you provide a few documents when you go to the title loan store or contact a lender online.
These documents are usually:
- Application for the loan
- Title of the vehicle used as collateral
- Photo ID
Once your application is approved by the title loan lender, you will usually be given 30 days to repay the full loan amount plus any interest. Typically, 30 days is enough for many borrowers to pay back the loan especially if the amount of the loan is only a few hundred dollars. You might just be in between pay periods, and once you receive your next paycheck, you can repay the loan in its entirety and be on your way.
Choosing a title loan over a traditional bank loan offers a few benefits for borrowers. For one, you won't have to deal with any snobby bankers that will judge you for your lack of credit and question your credibility as a borrower. You are already in a desperate situation, and the last thing you need is for someone to judge you for your own personal financial issues.
Also, when choosing a title loan over a traditional bank loan, you won't have to put your personal finances at stake. If applying for a loan from the same bank you keep your savings account, they could use that as leverage when considering your application. It is best to keep these kinds of things separate just in case.
Although a couple of hundred dollars might seem like a lot of money to you, to a bank, it's pocket change. Banks
want to lend large sums of money to people so they can collect more interest. While this is beneficial for business owners or rich folks trying to buy a second boat, for ordinary Americans that simply need some extra money to help pay bills, high-dollar loans are out of the question. If you only need a couple of hundred dollars, the bank will laugh at you, leaving you with the only other option, and perhaps the best option for this scenario: title loans.
Why Do I need to Put My Car Up as Collateral?
Although it may seem scary to put your car title up as collateral when applying for the loan, just because you are using your car title doesn't mean that you are giving your car away. Put yourself in the lender's shoes: if you were to lend a sum of money to someone, wouldn't you want some security knowing that the borrower is serious about repaying the loan?
Cars typically hold thousands of dollars in value and in the off chance that the borrower runs off with the lender’s money never to be heard from again, they know that they can recuperate their losses through the value of the vehicle. Yes, there is some risk involved for the borrower in putting up their car as collateral, but the lender is also taking on significant risk in lending money to someone without any credit history to show they are trustworthy.
That being said, there is a chance that your car could be taken from you if you fail to repay the loan so only use title loans if you are 100% you will be able to afford the loan repayment and the interest accrued during the time it takes for you to repay.
Who Can Get a Title Loan?
Mostly anyone can get a title loan and walk out with cash on the same day. There a few qualifications that borrowers must have before they can receive the loan, however. The good news is, most lenders don't even check your credit score!
If you have no credit or a really low credit score, you will be saved from the potential embarrassment and hassle that you would typically encounter with a bank or credit union.
To qualify for a title loan, first off, your car must be lien-free. This means that you own the car outright and no other entity or person owns the title. So, if you're making payments for your vehicle, you probably won't qualify. Lenders want to ensure that you are the only person that owns the value of the car. Otherwise, they could risk becoming entangled with other banks or vehicle lien-holders.
Also, to qualify for a title loan, your name should be listed on the title as the owner. This goes to the previous qualification as lenders want to make sure that the person they are lending money to actually own the car used for collateral.
You will also need to show that you receive a regular source of income. Lenders will accept a pay stub as proof of this. They only ask for this to ensure that you have the means to pay back the loan; lenders don't want to lend to people simply looking for free money! This proof of income can be from a number of different sources including full-time employment, unemployment benefits, disability, or pension plans.
Finally, you will need to provide them with a government-issued identification card to prove that you are a citizen and also so they can keep your information on file during the period of the loan in case they need to get in touch with you.
The Type of Vehicle Sometimes Matters
Different lenders have different policies in regards to the kind of cars that they will accept as collateral. While many will allow any vehicle that is in running condition, some will stipulate on the make, model, and condition of the car. Across the country, most title lenders specify the cars that they will accept as collateral. Typically, they stipulate on the following:
- Year the vehicle was manufactured
- Current mileage
Many lenders will only accept cars made in the year 2000 or later while there are some that will accept vehicles as old as 1995. Also, lenders want to ensure that the car still has some value in it based on the current mileage of the vehicle. If your vehicle has over 100,000 miles or closes to that, you will want to check specifically with your chosen lender to ensure that they will accept the car before you start signing any papers.
Lenders will in some cases also want to see the vehicle in person or photos of the vehicle to see the condition of the car. It's all about ensuring that there is value in the car should they come in possession of it. The better condition you keep your car, the more likely you are to receive favorable loan terms.
Important Things to Consider
Only Apply for What You Need
You may feel tempted to apply for a title loan worth a few hundred dollars more than the actual bills you need to pay just for convenience sake, and you could use a little extra "fun money." This is one of the quickest ways that people find themselves upside down on their loans and could end up really hurting you financially. It's extremely vital that you only apply for the actual amount you need and not a penny more.
Pay It Back Quickly
As with any debt carrying interest payments, the sooner you pay off the debt, the better. With title loans, it is essential that you pay back the loan plus interest as soon as you are able. Many fail to pay back the loan in a timely manner (even if they have the cash) which inevitably hurts their finances and credit score in the long run. Don't be like them, and pay your bills on time!
Don’t Forget About Interest Payments
Because title loan lenders are dealing with individuals with no credit history, the interest terms of title loans are typically higher than traditional bank loans. Before signing on the dotted line and securing a loan leveraged against your vehicle, make sure that you understand the interest on the loan and the extra costs it will add.
Make Sure You Can Still Drive Your Car
The vast majority of title lenders in the nation allow borrowers to continue driving their car during the life of the loan. This is important because your car is your form of transportation to get to work every day, to drop your kids off at school, and to go to the grocery store. Without your car, you might not be able to get to work to earn the money needed to repay the loan.
Before signing any papers, make sure that the lender will let you still drive your car. You’d be surprised how many shady lenders require that your car is impounded during the loan so do your homework to avoid any unpleasant surprises.
Times are tough, and you will want to get the cash you need to pay bills as soon as possible. That being said, you should take the time to really consider your options before signing up for a title loan and handing over the title to your car. Like we've mentioned throughout, title loans are incredible options for most people, and as long as you are responsible, you can avoid having losing possession of your car. Just be sure that you have the financial means to repay the loan or negotiate it down should any problems arise, and you'll be okay.
If you don't have any credit,
it's not the end of the world, and you can scrape by for a while with no problems at all as long as you're careful with your money and pay your bills on time. However, when people find themselves in stressful money situations, many will be dismayed to find that traditional lenders won't provide a loan to them. Give a title loan a shot, and you'll be happy to pay off your bills and avoid eviction or utility shut-off altogether!