How to Use Title Loans Responsibly and Avoid Financial Pitfalls

How to Use Title Loans Responsibly: Pitfalls to Avoid

Managing your finances can be complicated, especially when emergencies arise. Many of us don’t have the option of taking out a bank loan, and that’s where title loans can be a real lifesaver. Convenient and easy to get, title loans can help you out of a sticky situation, so that you can get your finances back on track. However, title loans are not without drawbacks. As with any financial product, whether or not they work for you depends on whether or not you can use them responsibly.

What Are Title Loans and How Do They Work?

A title loan Is a short term loan, using a vehicle’s title as collateral, and can only be issued for vehicles with no lien. The car’s owner retains the vehicle while the title loan is in place, and can use it while paying off the loan. It’s a good option for someone who needs cash quickly for an unexpected expense, and may not have good enough credit for a traditional bank loan. To obtain a title loan in Texas, an applicant must be 18 years old or older, and own a vehicle free and clear, in good condition. Here is how the process works:

• An application is completed, with basic information about the applicant and the vehicle.
• The lender assesses the vehicle’s value by visually inspecting it.
• A loan offer is extended, typically for 25 to 50 percent of the vehicle’s value.
• If the applicant accepts the loan, the title is handed over to the lender, who becomes the lienholder.
• The loan money is disbursed quickly, either by cash, check, or direct deposit.
• The loan terms are set up so that the borrower can either repay the loan by a certain date or roll the loan over, with new fees.

Common Risks of Title Loans and How to Avoid Title Loan Mistakes

This all sounds straightforward and easy, so is there a catch? The first thing to understand about title loans is that the interest can be quite high. This is the trade-off for the loan being quick and easy. In addition, some title loan lenders are predatory, adding hidden fees into the loan, so that it’s harder to repay. If the borrower can’t repay the loan immediately, there is the option of paying only the interest and rolling the loan over, but no principal is paid, so the loan amount remains the same. It then climbs higher, after additional fees are added for the new loan. This can lead to a cycle in which the borrower continues to extend the loan, and the amount owed becomes increasingly unmanageable. The title loan company, as the lienholder, can repossess the vehicle if the loan is not repaid.

Essential Tips for Responsible Title Loan Usage

So, is a title loan worth the risk? It can be, for a careful and responsible borrower. Here are some tips for using a title loan responsibly.

• Only take out a title loan for unexpected expenses. Never use a title loan for everyday expenses. Living on title loan money is unsustainable because of the high interest rates.
• Take only what you need. Sometimes, a title loan might be offered in an amount over what is necessary to cover your emergency expenses. It can be tempting to take the extra cash, but be very cautious about doing this. Extra title loan money means extra interest, which means it will be more difficult to repay.
• Have a plan in place for repayment. If you don’t know when you’ll have money to repay the loan, a title loan isn’t for you. Paying it back in a timely fashion is the only way you’ll be able to retain ownership of your vehicle.
• Research lenders before you take out a title loan. Some title lenders are not above-board, and can even be predatory. Look for a lender with a reputation for fairness and honest dealings.
• Make sure you know what you’re getting into. Know the requirements before you fill out the application, and make sure you have a clear understanding of your responsibilities. If you are planning to fill out the application in person, be sure you understand what you need to bring, including id, title, and in some cases, references.
• Never sign a contract without reading it. Before you sign your loan agreement, it’s important for you to understand the loan amount, interest rate, fees, loan term, and repayment conditions. Ask questions about anything unclear, and be sure you understand what will happen if you don’t repay the loan.

Safe Title Loan Practices: Red Flags to Watch Out for When Choosing a Title Lender

Some title loan companies have a reputation for integrity, but others have questionable or predatory practices. Avoid inexperienced companies, looking instead for a well-established title loan company with favorable reviews. Make sure the company is properly licensed, and has the right security in place to protect your financial information. Additionally, check the company’s claims against their reputation — a company that overpromises and underdelivers could leave you trapped in an unfortunate and expensive debt cycle.

Tips for Paying Off Title Loans without Stress, and What to Do if You Can’t Repay a Title Loan on Time

Paying off your title loan quickly is the best way to avoid stress and give your budget some breathing room. It may sound easier said than done, but there are some strategies that you can employ to simplify it.

• Make extra payments when possible. If you can make payments between your scheduled payments, you’ll get the loan paid more quickly. Even if the extra amount you are able to pay isn’t much, it’s still a good way to chip away at the debt.
• Try rounding up your payments. Can’t make extra payments? Even just rounding your regular payments up by a few dollars can help.
• Use any windfalls to put a dent in your debt. Any extra money that comes your way while you owe a title loan should go towards paying it. Why? Even if you have other debt, the title loan is likely your highest interest loan. Paying it off quickly can save you significantly on interest.
• Consider a loan buyout. Sometimes, a title loan just turns out to be a bad deal. In that case, it may be worthwhile to speak with a new lender that could refinance your title loan and help you with a new loan with better terms.
• Always communicate with your lender. If you are having trouble paying, let your lender know. It’s easier for the lender to work with you than to repossess your car, so there may be a temporary repayment plan available until you get back on track.

Responsible Borrowing with Title Loans Means Finding an Honest Lender Like VIP Title Loans

When you need a title loan, the first step in borrowing responsibly is finding a title loan provider you can trust. At VIP Title Loans will value your trust, and we want to help. That’s why we offer competitive, manageable rates, keeping our fees lower than most other companies. What’s more, we offer title loan buyouts, to help borrowers stuck with a bad loan. We want to earn your business by saving you money, and with locations in Arlington, Dallas, Garland, Hickory Creek/Denton, and  Richardson, we’re easy to find. Stop by to see what we can do for you, or contact us for more information.