How do Car Title Loans Work?
Imagine you are in need of money and it’s an emergency. You need cash as soon as possible but getting money from banks as the loan will take a very long time. Such times can be very stressful for you.
Car title loans offer a way to quick cash in case of tough times. To get such a loan you will need to pledge your vehicle as collateral and handover the title document to your car. The title remains with the lender till the loan is repaid.
To borrow against your car, you must be the complete owner of your car. That means that there should not be any outstanding debt on your car. The amount that can be borrowed depends on the value of the car. The value will depend on the condition, mileage, make and model of the car. If the car has a lot of mileage on it or is an older model, then the value will be lesser compared to a new car.
The loans require submission of some documents like:
- Lien free title
- Proof of address
- A valid driver’s license or any government issued ID
- Proof of income
- Car registration
- Full coverage insurance
The loans are based on the title of the car as collateral and hence don’t require a credit check. The borrower’s credit score is not considered and a person with bad credit can also access this loan. Most car title loan companies don’t report transactions to the credit bureau. There is no pre-set limit on the amount to be lent. There are also car title loans online that you can access through the internet. The online processes are fast, and you get access to funds really quickly. If you search well enough you can also find out low interest car title loans.
- Explore the options from various lenders to check the best option for you.
- Understand the terms of loan and repayment very carefully.
- Make sure that you make payments on time.
If you have a car title loan, then you will be thinking about the lien on it. So, what is a lien? Lien means the right to take away the property or asset if someone breaks a contract. Here, lien means that the lender who has loaned you the money can take away the car in case you fail to pay the loan amount with real money.
Can you sell a car with a lien? Is it Illegal?
Selling off a car or vehicle with a lien on it is not illegal as long as you can pay off the loan and transfer the title to the new owner. The key here is that the loan must be paid off. Selling the vehicle without paying off the loan will land you in a soup. If you have a lien on the vehicle then the lender is the actual owner of the car, so you cannot really sell a car that you don’t own. If you do sell the car without paying off the title loan and the lender has the title, then you are selling a stolen car which makes it completely illegal.
Is it worth selling a car with a lien?
In order to determine if selling the car with a lien is worth or not, you must know the equity in your car. Equity is the difference between the current value of the car and the outstanding loan balance. A larger current value will ensure that the equity is positive. Sell the car only if the equity is positive. You are most likely to get the current value of the car on sale and if your outstanding loan amount is more than that then there is no point in selling it. For example, you need to pay back $5,000 dollars as a loan and the current value of the vehicle is $20,000. The difference between the two amounts is $15,000 of positive equity. So, if you sell the car, you can still pay off the loan amount and have leftover cash. But if the loan balance was $25,000 then selling the car would be a bad idea. This is an example of negative equity.
Options for Sale
For a car which has a lien on it, you can either privately sell your car or use a dealer for sale. Selling through a dealer is much less complicated than trying to sell it yourself. The dealer will appraise your car, pay off the existing loan and then give a check for any remaining balance. Once the car title lender receives his repayment, he will send the dealer a release of lien letter, which allows the dealer to resell the car. If you reside in a title-holding state, then the title will be sent to the dealer. You can also bring in the title physically to the dealer, sign off on it and let him buy the car.
Although selling to a dealer is an easier option, selling the vehicle privately will get you a better price. It is recommended that you mention the lien information in any ad you place for sale. Once a deal is made, the new buyer and you must go to the lender, where the new buyer must pay the outstanding loan balance. The lender will sign over the lien to the new buyer after you receive any extra amount left over.
Often there is some extra money left over from the sale. If not, then you probably shouldn’t have sold your vehicle. With this extra money, you can make a down payment for a new vehicle or make use of it as you find appropriate.
You may choose any type of loan, but lenders require proof of comprehensive insurance as well as collision insurance. If the car is paid off, then you may choose to keep only liability insurance. In such a case a lender may offer you the option to purchase credit insurance which covers you in certain cases. The loan repayments will be covered through credit insurance if your car is damaged, you lose your job or are injured. But credit insurance doesn’t cover the cost of repair for a damaged car.