There is nothing new about using a car as collateral for a loan. What has changed in recent times is the way that people are obtaining these loans. While you used to have to go into a credit union, bank, or other lending facility in person, these days you can complete the task without even leaving home. You can now get an online car title loan in as little time as an hour using your computer. There are some important things to consider before borrowing money this way, and it might not be your best option.
How do Online Loan Companies Operate?
There are plenty of websites that offer this service and it is a very profitable business. While almost anyone with a job can get a fast payday loan, the amount that you can borrow is usually under $1000. By using your car as collateral, you will have access to a larger amount of money. The normal car title loan amount is half of the wholesale value of your car, or the amount a used car dealer would pay you for it if you sold it to them. The minimum amount that you can borrow for this loan type is usually $1,000, and some states have laws that set the maximum amount.
In order to obtain a car title loan online, you will normally need to provide the lender with the following items:
1. A clear auto title (you must own your car outright)
2. Personal information used to gather credit information about you
3. Your vehicle’s insurance, registration, and your driver’s license
4. Proof of employment, which usually comes in the form of your last paycheck stub
5. A set of car keys that you will send to the lender
There are many online companies that provide this service, but in general, most of them will want the above mentioned items. Some lenders may ask you for other information as well, such as references at your workplace. Giving the lender a spare key to your car will enable them to repossess it easily if necessary.
How much do Online Title Loans Cost?
If you were considering an online car loan, you would be wise to explore other options for obtaining money first. The reason is that this type of loan has extremely high interest payments compared to lenders that are more traditional. If you have not already done so, try going to your bank and asking for a loan first. Another potential source of money is your employer. Try asking your boss for an advance on your next paycheck. Most people are desperate for cash when they receive an online car title loan, and they pay a huge amount of interest on what they borrow.
Let us work through an example: Say you borrowed just 1,000 using your car as collateral. Most lenders will charge you somewhere in the range of 15% to 25% interest per month on the total amount that you owe. You have a choice to borrow the money for either 6 months or 1 year. Assuming you find a lender that only charges 15%, if you choose to pay it back in 6 months, at the end you will have paid $585 in interest to borrow $1000. If you choose a 1 year payback period, your monthly payments will be much lower, but the amount you pay in interest will be a lot more. After one year, you will have paid $1,213 in interest for borrowing $1,000 in principal, for a total of $2,213. This is not a very good deal, and should only be taken if there are no other options.
Getting an online car title loan may be a quick source of cash in times of trouble, but you sure pay for it in interest. A good rule of thumb is to only borrow what you know you will be able to pay back. Contact your lender if you cannot make payment for some reason, since the last thing that you want to happen is for them to repossess your car.