Collateral is something that you pledge as security when borrowing some additional funds from a bank or an institution. This is also called a secured loan, wherein when the borrower fails to make his payments, the item being held as collateral will be taken in lieu of the amount owed. It could be land, a business, and in this article, a car. In very tight situations, this could be a very timely and alternative use for a car. This is most especially true if you have a not so stellar credit rating. Because you have a guarantee, your credit will most probably not be in question or go under scrutiny.
How Does It Work?
It works just like any other loan with collateral. It is just you will be using the title for your vehicle as a guarantee. The amount you can borrow depends on the make and model of your car with emphasis on its age and condition. The financial institution will not take your car but instead take the title, and you can still operate and drive the car around so long as you are in good standing with the lender. Good standing means that you do not get into default with your loan as the alternative would be the lender assuming ownership of your vehicle. A loan with collateral is more easily approved than those unsecured loans especially when you have a bad credit rating. Even if you did not yet fully pay the car in question, you can still use it as collateral provided that you have enough equity in the vehicle. Furthermore, there is no shortage in the list of auto equity lenders, as it is a common enough practice.
How Much Can I Borrow?
This is totally dependent on the value of your car. This will be after the bank or the financial institutions’ inspection of your vehicle. They will make an offer based on their appraisal of your vehicle. As a general benchmark, a loan may cost up to 50% of the value of your car.
How High Are The Interest Rates in A Car Title Loan?
The amount varies among lenders, and a typical one is a monthly interest rate and not an APR ( Annual Percentage Rate) especially if the duration is less than a year. The amount can be pretty steep, but because of the convenience, a car title backed loan offers it could be worth it. However, each lender will be unique and you can most certainly try to bargain for a lower interest rate.
Do I need To Undergo A Credit Check?
Because you have collateral, the bank or the lender will most probably not require your credit to be checked. However, if you have a good credit rating, this can help you get better rates on top of the guarantee of the car title.
Find A Good Lender
Dig a little deeper than the usual so you may find a reputable lender that won’t bleed you dry of your money. Check online for your reputation, good solid research online can be very beneficial in finding out what the reputation of a company is.