Title loans on financed cars offer a way for borrowers to leverage the value of their vehicle to access quick cash when needed. These loans allow borrowers to use their car title as collateral, providing them with immediate funds based on the vehicle’s appraised value.
As with any type of loan, there are potential benefits and drawbacks. On one hand, title loans provide quick access to cash without the need for a credit check. Additionally, borrowers can get larger loan amounts compared to other types of short-term loans. However, title loans typically come with high-interest rates and short repayment terms. Even worse, failure to repay the loan may result in repossession.
In this article, we will explore the concept of title loans on financed cars, shedding light on their benefits and drawbacks.
How Title Loans on Financed Cars Work
If you’ve made the decision to apply for a title loan online, you’re probably asking yourself, “Can I get a title loan while still making payments on my car? Wait, can you get a title loan on a financed car?”
Although there is no law that prohibits using a financed car as security for a title loan, there are challenges and restrictions that go with it. For one thing, lenders prefer borrowers that have full ownership of the vehicle’s title so that they get full claim on the vehicle when the borrower defaults.
In case the vehicle is still under financing, the lien or the right to keep possession of the vehicle belongs to the primary lender, also called the lienholder. Technically, the borrower cannot offer the vehicle’s title as collateral unless he gets consent from the primary lender. Therefore, the first step of getting a title loan on a financed vehicle is to get the lienholder’s approval, who may allow or may not allow it. If allowed, expect additional guidelines from the lienholder. Then, be ready to submit all the documents that will be required by the second lender.
The Good
When you’re facing a financial emergency or unexpected expenses, a title loan on your financed car can be a real lifesaver. It offers a straightforward way to get the cash you need, without the hassle of lengthy approval processes. As said before, it is easier to get quick cash for your emergency expenses this way compared to applying for traditional loans. This is particularly true if you have a poor credit rating or no credit history. Moreover, the interest rate of secured title loans is lower than unsecured loans like payday loans as the collateral serves to mitigate the lender’s risk.
The Bad
Not everything looks advantageous for a title loan. While the interest rate may be lower than payday loans, it is still higher than the interest rates offered by traditional lenders like banks.
Furthermore, it’s possible for your interest rates to go higher than you would like them to be. When you fail to repay the loan, the lender could levy excessive fees and interest charges. These could accumulate quickly and soon your loan payments can be much bigger than the original loan amount.
Lastly, title loans on financed cars offer a lower loan amount since the appraised value or resale value of the car will be reduced by the existing financing or how much is still owed. This is done by the lender to minimize the risk of losing to the lienholder.
The Ugly
What is the ugliest thing that can happen to a title loan borrower? Vehicle repossession. If a borrower is unable to repay the loan according to the agreed terms, the lender may seize the car, leaving them without transportation and exacerbating their financial difficulties.
Some dishonest lenders also take advantage of the poor borrower. They engage in predatory practices such as overvaluing a vehicle and lending more money than the borrower can afford to pay, charging hidden fees and other excessive fees, and loan flipping or encouraging the borrower to repeatedly refinance the loan.
The Conclusion
Applying for a title loan on a vehicle that is still being financed is not for everybody. Do your research and weigh the pros and cons of using your car title as collateral. Ask yourself “Is it worth it?” “Will you get more or less than the appraised value?” “Are you paying considerably more than the loan amount?”
Assess your capability to repay the loan as non-payment can lead to vehicle repossession. If it is too difficult for you to pay, choose to borrow through other means to avoid losing your car.
You can explore alternatives such as borrowing from family and friends, getting a loan from banks, a credit union, or from your employer. Use your credit card to get a cash advance but be sure to pay promptly. Check for local assistance programs in your community. You can also explore the possibility of getting a part-time job or side gig as an extra source of cash.
