How Much Can You Get with Car Collateral Loans?
The amount that you can get using a car title loan will vary on a number of factors. The most common factors affecting the amount you can borrow are the value of the vehicle and your lender. Most lenders use the Kelley Blue Book to determine the current fair market value of your vehicle. Be aware that this does not mean you can borrow up to the full market value of your loan. Lenders will usually only offer you a percentage of the value of your vehicle as your loan amount. According to the Consumer Federation of America, the most common percentage is between 50 and 55 percent of the fair market value. This means that if you have a vehicle with a fair market value of $5,000 then you would likely be offered a loan of about $2,500. The Centers for Responsible Lending report that the average loan amount for car title loans is $600 to $2,500.
In some states, there are also restrictions in place that limit the amount of money a consumer may borrow using a title loan. For instance, the loan limit in Illinois is $4,000. Furthermore, lenders may not institute payments for loans that would exceed 50 percent of the borrower’s gross income. Many states also have restrictions in place that ensure the loan will be repaid in equal installments, preventing balloon payments at the end of the loan period, which can place an undue burden on consumers.
Title Loan Laws by State
If you are thinking about taking out a title loan, you should also be aware that such loans are not available in all states. While title loans are available in some states, in other states there are restrictions regarding such loans. Title loans are not allowed in more than 20 states.
States that do allow title loans include:
- • Alabama
- • Arizona
- • Delaware
- • Florida
- • Georgia
- • Idaho
- • Illinois
- • Kentucky
- • Mississippi
- • Missouri
- • Minnesota
- • Montana
- • Nevada
- • New Hampshire
- • New Mexico
- • Oregon
- • Rhode Island
- • South Dakota
- • Tennessee
- • Texas
- • Utah
- • Virginia
- • Wisconsin
Title loans are also made possible in California, Kansas, Louisiana, and South Carolina under certain guidelines. In states where title loans are legal, there may be various limitations, including fee and interest rate limits. Some states also impose limits on the dollar amount that can be loaned as well as the length of the repayment period and the number of times the loan can be refinanced.
Process for Obtaining a Title Loan
In order to take out a title loan, you will be required to have a clear title to your vehicle. Title lenders do not perform credit checks, which can be an excellent benefit for consumers who have bad credit or no credit. You will usually be required to present a pay stub to show that you have a reliable source of income that can be used for repaying the loan. Additionally, you will usually be required to show personal identification. Some lenders may require you to provide a second set of keys to the vehicle that can be used in the event you are not able to repay the loan and the vehicle must be repossessed.
Understanding Title Loan Interest Rates
The amount of interest charged on a title loan may vary. Many lenders charge an average interest rate of 25 percent per month to finance car title loans. This means that if you borrow $500 for a month, you would repay the original loan of $500 along with $125 in interest for a total payment of $625. If you are considering taking out a title loan, it is a good idea to make sure you understand the interest rate to be charged as well as any other applicable fees so you are aware of the full amount that will need to be repaid at the end of the loan period.
Repaying Title Loans
Lenders usually provide borrowers with a variety of options for repaying their title loans. These options might include paying in person, through an automated repayment system, or through an online system. With an automated repayment plan, you provide the lender with authorization to take payments regularly from your debit or bank card on the day the payment is due. If you agree to this type of payment arrangement, the lender is required to provide you with a copy of the recurring debits. Automatic payments can be a convenient option for individuals who are concerned about taking time away from their schedule to make payments in person.
Rolling Over Title Loans
You should also be aware that if you are not able to repay your title loan, your vehicle could be subject to repossession. Most lenders will try to work with you whenever possible to ensure this does not happen, but if you absolutely cannot repay the loan, the lender may take your vehicle and sell it in order to recoup the amount of the loan. In some states, lenders are legally required to pay you the difference between the loan amount and the sales price when they repossess a vehicle and sell it. This means that if you borrowed $1,000 and your vehicle sells for $4,000, then the lender would be legally required to give you the $3,000 difference. In other states, lenders are allowed to keep the full amount from the sale of the vehicle.
Car collateral loans can be a convenient option for consumers who need to borrow money quickly and who may not have access to other types of financing due to credit problems. Many car title lenders are able to process loan requests quite quickly and can even fund approved loans within about 24 hours. By understanding what is involved in a car title loan, including the amount that you may be able to borrow with this type of loan, you will be in a better position to determine whether this type of loan might be the right option for your current financial needs.