Compared to housing loan programs, car title loans, which are also called “pink slip loans” in the United States, are more accessible because you don’t need to prepare a big package of different necessary documents. The reason is that movable property is easier to deal with from a legal standpoint since fewer external factors influence deals. That is why car title loans are more popular.
However, there are some nuances and pitfalls to be aware of, so you will be able to keep your credit score high and your credit history clean, as well as repay the “pink slip” auto loan without problems. ClearVin invites you to take a practical view on mortgage credits and sort everything out.
Briefly About What a Car Title Loan Is
It is a kind of mortgage that refers to using a vehicle, including a motorcycle, boat, and other personal transport, as collateral. There are two types of “pink slip” credits, as follows:
- Short-term car title loans usually have a repayment period that reaches 15 to 30 days.
- In contrast, long-term auto mortgage credits give you around 30 to 60 months to return the funds and get your car title back.
A borrower can count on approximately 25 to 50 percent of their estimated car value. The rate typically starts at $100, depending on the lending organization and its credit conditions. The maximum funding can reach $100,000 and is established by the state’s or country’s local laws or restrictions.
The main point in the car title loan agreement is that a vehicle goes to the lender as collateral to have any guarantees of the funds’ return. It is important to remember that the vehicle remains at the borrower’s disposal, and they can use it without conducting legal processes. If a borrower is not able to meet their payment obligations, the automobile is completely alienated. That is why it is essential to realize all the benefits and drawbacks of such agreements and make sure there will be an opportunity for conducting repayment.
Bear in mind that, according to financial rules, if a credit, particularly a car title loan, has a low entry level and is easy to access, it means that the interest rates are much higher compared to average parameters. It can be explained by the financing organization’s intent to get as much benefit as possible.
What Affects Car Title Loans?
The factors that influence car title loan conditions and their accessibility vary depending on the financing organization’s terms and the legal restrictions that regulate the credit industry. However, it is possible to outline the key points and characteristics that affect “pink slip” auto loans.
Remember that your vehicle will necessarily be evaluated to calculate the proper car title loan sum. Parameters that play an essential role here are as follows:
- year of manufacture;
- car’s make, model, and trim;
- engine’s technical state;
- car body condition.
The main points that have a significant impact on car title loans and that a borrower must meet are a good equity value of the vehicle, its condition, and a reliable income source.
Not in all cases, but sometimes your credit score can be checked by a lender. It depends on the car title loan provider’s reputation and financial capabilities, as well as the funding offered. The key point here is to have no assigned debts. Otherwise, the creditor will not be able to trust you.
The previous loan sums, if any, and the term of repayment can also be taken into consideration and analyzed. At the same time, any person can find some organizations that don’t check the borrower’s background and only need a basic document package. Remember that in such cases, there is a high risk of being cheated. Prior to applying for a car title loan, devote a lot of time to researching the information about your potential lender.
What Do You Need to Make Use of Car Title Loans?
As in any bureaucratic process, a person needs to meet some criteria to be eligible for the “pink slip” loans:
- a borrower must reach a certain age (as a rule, 18–19 years) that differs in various states and countries;
- a person must have both collision and comprehensive insurance on their vehicle;
- a car that will be used as collateral must be both registered and insured in the borrower’s name;
- an automobile should be paid off completely and lien-free before taking a car title loan and should have no more than a defined amount of years or mileage (as a rule, vehicles older than 8–9 years are not considered by the lenders).
Although you can apply for auto mortgage credits online, it is necessary to visit a physical location with your car, so the lender will be able to evaluate it and conduct all the necessary procedures.
If we are talking about the paperwork needed to have an auto loan, it also differs. At the same time, the essential documents include:
- a lien-free certificate of title issued by the local DMV institution where you are residing;
- a copy of a valid ID;
- a copy of a driving license;
- proof of the current residence;
- proof of income.
Some lenders can also have your credit history checked. However, car title loans are based on the vehicle’s entity, and a low credit score may not be a dealbreaker. Also, there are cases when a person should provide their Social Security Number to the financing organization, according to their terms and conditions.
If a borrower has met all the requirements and provided all the essential documents with a clear title, then the auto loan process will not take a lot of time. As a rule, it needs a few hours to have the funds transferred to a bank account.
Benefits and Drawbacks of Car Title Loans
Auto mortgage credits are attractive to those who want fast cash to cover their immediate financial needs. Without any doubt, the intention to use such an opportunity as having your vehicle temporarily as collateral makes sense. Let’s review some advantages of the auto loan process:
- eligibility even with a bad credit history;
- easy-to-receive financing;
- quick payout approval and cash transfers without delays;
- no control over the car title loan spending.
Everything may seem easy and beneficial. However, some traps or misunderstandings from the lender’s side may be hidden behind the curtain. That is why it is necessary to read the agreement carefully and ask all the questions that may arise in the auto loan process. It can help you avoid significant issues, penalties, and even legal actions.
Another downside to the “pink slip” loans is the availability of sanctions that a borrower may face. We suggest a prepayment penalty as the most confusing one. It applies when a person refunds all or a certain part of their mortgage early. To avoid it, make certain that you are aware of the circumstances under which you will be obliged to fund the prepayment penalty, as well as the amount of it.
Other Important Nuances
To have only positive experiences when dealing with car title loans, a borrower must be familiar with all possible pitfalls. Let’s take a look in detail at some important points when it comes to applying for a “pink slip” auto loan.
To avoid fraudulent companies, pay close attention to whether you are dealing with an officially licensed financing organization. It is a key point to make sure that you are in a legal field and can rely on the law’s support in different situations.
Also, take into consideration that some states in the U.S. have completely prohibited providing auto loan processes, while others may have some restrictions or legal peculiarities. Thus, it would be a great idea to check the local law concerning mortgage credits and their conditions.
There is another point to remember before getting a car title loan. A lender can require a special document from your employer that verifies your income, proving that you are able to repay the debt on time. However, it’s also possible to find an organization that doesn’t need such paperwork confirmation. The best option here is to research the car title loan market specifically in your state or country and have conditions that will meet your capabilities and requirements.
You can find different opinions on the subject of car title loans as well as various financing institutions with different reputations. At the same time, if you research all the relevant data about these credits, read the agreement carefully, and approach repayment with all responsibility, a “pink slip” loan can be a good financial tool to overcome some immediate issues with your budget. To make the task easier, we have presented our article with some essential points to consider before you decide to apply for a car title loan.
ClearVin also offers solutions to a driver or a car dealer for VIN decoding, license plate or Monroney sticker lookup, recall checking, and much more. Receiving all the needed vehicle data has become as easy as ABC with ClearVin. To find out more, check our resources or contact us online if any questions concerning our products arise. Alternatively, you can call us at: +1 (844) 268-5991 (8:00 AM–3:00 PM EST, Monday–Friday).