How Title Loans Work and the Risks They Carry

No one expects to have their car break down or their pipes to burst.

Ideally, you would have a backup plan for unexpected emergencies like these, but sometimes, circumstances beyond our control make savings accounts and traditional loans impossible. That's where non-traditional loan options like car title loans come into play.

Curious about how title loans work? We've got you covered on title loans in Dallas! Read on to learn all about title loans and if they are right for your financial situation.


What Are Car Title Loans?

Car title loans are a short-term loan for people who do not want to run their credit for a traditional bank-issued loan or who do not have a high enough credit score to qualify.

Instead of qualifying for the loan based on your credit-worthiness, you use your car as collateral to secure the title loan. For that reason, the amount of a loan you'll receive is based upon your car's value.


What Should I Know About How Title Loans Work?

In order to qualify for a title loan, you must have a vehicle to which you have a free and clear title. That means you cannot be making payments on it, but some title loan companies may allow you to take out a loan on the car if you have equity in the car.

You begin the application process online or in-person, depending on the company. You must then bring the car to the title company for assessment, along with proof of the title, a valid registration, and proof of income. You cannot qualify for a title loan if you do not have the ability to repay the loan.

The amount of money you'll be offered will be for a portion of the resale value, usually less than 50 percent of the value. Most car title loans are for a period of 15 to 30 days. Once you repay the loan, then you own the car free and clear again.


What Are the Risks?

Car title loans work well for people who are short on cash and in a pinch. They are not, however, meant to serve as a long-term solution for cash flow issues.

Many title loan companies offer their customers the ability to renew their loans. That means that the customer pays the loan in full and then takes out the loan again. These loans have high interest rates, around 300% APR, and if you continually renew the loan, it'll end up costing you a huge amount of money in the long run.

Further, car title loans have precise terms. If you fail to repay the loan on time or in the manner to which you agreed, then the title loan company has the legal right to repossess your car, even if what you owe them is far less than the value of your vehicle. If you cannot afford to lose your car, and if repaying the loan is going to be very difficult for you, then you should consider other options before taking out a car title loan.


Ready to Tackle Your Finances?

Car title loans are a good solution for short-term financial issues. Knowing how title loans work is the first step to getting the cash you need right now, and knowing the risks helps you make an informed decision about the solution to your financial issues. 

Once you work through this financial emergency, start a plan to prepare for unexpected expenses in the future. You don't want to be caught unprepared for another situation that could be taxing on your personal finances.

Want more helpful articles about staying on top of your finances, loans, and debt? You've come to the right place! Check out the rest of our blog for everything you need to know about loans and finance!