The Basics of How Title Loans Work
You can get a loan contract in many different ways. These loans can range from spoken agreements between you and a loved one to legal contracts that you take out with an institution such as a school or a bank. Banks and lenders offer loans that allow you to buy significant items such as an education, a home, or a car. You can also get what is known as "personal loans" for non-essential items such as a vacation or a car repair. If you ever need to borrow money, you should learn the basics behind loan contracts and how they work.
How Do Loans Work?
You can get a loan for almost any type of issue, from payday loans and title loans to student loans and mortgages. The type of loan that you borrow will depend on how you intend to use the funds. The terms of your loan will determine things such as the interest rate, the length of the loan, and the due dates for payment.
Borrowers can get many different types of loans, from closed-ended to open-ended to secured and unsecured loans. With an open-ended loan, you can borrow the funds over and over again. Some examples of open-ended loans are lines of credit and credit cards. A closed-ended loan ends once you run out of funds. Taking out a secured loan will require you to put up collateral. You don't need to put up collateral to get an unsecured loan, but you will pay a higher interest rate.
One example we can give of a secured loan is a car title loan. If a person doesn't fulfill their financial obligation, the lender will take ownership of the collateral and possibly sell it to make some of their money back. Justin Pritchard of The Balance states that one of the main dangers of a car title loan is that your car will get taken away if you don't pay back the funds you borrowed.
Certain loans can charge a high interest rate. Before you take on a car title loan or a loan of any type, ask about the annual percentage rate as the APR will determine what you pay.
How Car Title Loans Work
A lender will give you a car title loan for a fixed amount over a period of time. You will give the title of your vehicle over to the lender. The title acts as collateral. You can keep your vehicle as you pay off the loan. The terms of most car title loans require that the borrower pay the funds back within 30 days.
When you first arrive at the lender, you will need to show them a few forms. They include your vehicle's title, an ID, and an application. Your lender will ask to either get photos of your vehicle or they may want to examine it in person. As a borrower, you might need to give the lender an extra set of keys. You might also need to purchase some type of roadside service such as AAA. Once the lender accepts your loan application, you will give them the vehicle title. After you sign the loan agreement, you must repay the funds you receive within the allotted time.
How to Borrow Responsibly
The Federal Trade Commission warns people against some of the downsides of a car title loan. While not all lenders act as predators, borrowers can get taken for a ride if they are not careful. Concerned about poor borrowers who take on car title loans when they have no way of paying back the funds within a short period of time, the FTC offers the following tips:
Always examine the terms before signing the loan agreement: You have the right to get the true cost of the loan. These costs will include the APR, the finance charge, and all of the other fees.
Look out for add-ons: Some lenders may require you to purchase "add-ons" such as a roadside protection plan. These extras will add to the total cost you pay the lender. The extras also get put onto the APR, which can send your total cost up into the stratosphere. Ask about add-ons before you sign the loan agreement. Once you sign, you're legally required to pay the agreement, so be aware of any extras you're asked to buy.