We’ve all been there – a sudden sickness that causes you to miss work, an unexpected car repair bill, a simple checkbook error and suddenly you find yourself a bit short on cash. Personal finance is fraught with minor emergencies that call for an infusion of cash now. Many consumers have found that auto title pawns (otherwise known as title loans) offer a way to make ends meet over the short term.
Auto title loans are generally short term loans made based on the value of a customer’s vehicle. The lender assesses the value of the car, and makes a loan based on their assessment. The loan is secured by the title to the vehicle – there is often no credit check required and customers can walk out with cash in a matter of minutes.
As with any financial service, there are risks involved in taking out an auto title loan. As noted on Bankrate.com, consumers should exercise caution when considering this or any other financial service. Interest rates are often higher over the long run than consumers might find with other financing options, such as credit cards or bank loans. Consumers who default on their loans can have their vehicles repossessed, and those that don’t use the service wisely can find themselves falling deeper into debt if they have to continue to refinance the loan for longer periods.
On the other hand, there are some definite benefits to auto title pawns that savvy consumers can use. For example:
1. Title loans provide fast cash.
This one may seem obvious, but when people need money quickly, title loans can sometimes be a lifesaver. People find themselves facing a variety of challenges in life wherein they need access to cash quickly. For consumers who have limited access to credit or poor credit ratings, meeting these needs can be a nightmare. Fortunately, most title lenders do not rely on a customer’s credit rating in making loans. Instead the loan is secured by the value of the customer’s vehicle. For millions of consumers, this service can be the difference between getting the money they need and facing financial disaster. As a bonus, the customer gets the benefit of keeping their vehicle while they make the loan payments, as opposed to selling the car or pawning personal belongings.
2. Title pawns are simple.
An informative article in The Washington Post recently pointed out that one of the most important benefits of title loans are their simplicity. For many people, navigating the fine print and hidden fees associated with traditional financial services can be a real challenge. Most title loans, on the other hand, offer fairly straightforward pricing and terms. This makes it easier for consumers to compare offers and choose the services that best meet their needs.
3. Title loans are available to everybody.
The only major requirement to obtaining a title loan is having a clean title to your vehicle. That means that consumers who have difficulty obtaining other forms of credit can get the money they need. Additionally, bank accounts are usually not required for a title loan. This means that customers who do not have bank accounts can still use this service.
4. Title loans have limited financial risk
This one might be surprising, especially considering how the media often portrays nontraditional financial services, but title loans offer consumers certain protections that other forms of credit do not. The loans made by these types of lenders are usually short term. This means that, although annual interest rates are high, most consumers aren’t paying the APR on these loans. Additionally, the loans are secured. That means that customers are acutely aware of what happens if they can’t pay – the lender takes possession of their vehicle. This provides an incentive for the consumer to make timely payments, but also limits their financial exposure – there isn’t an endless cycle of late fees and interest that can bury people using other forms of short term credit. Finally auto title pawns are non-recourse, meaning that lenders are limited to collecting the collateral in case of default, rather than being able to go after a customer’s bank account or other personal assets if they are unable to pay.
5. Title loans meet a real need.
For consumers who have emergency expenses and limited options, title loans are often the best way to make ends meet. But there are a variety of other reasons and ways to use title loans. Many small businesses use title loans to provide liquid capital for their business. By taking a loan on their vehicle, these businesses can pay for the materials and labor needed to do a job. They repay the loan when the job is paid, and come out ahead. Others turn to title loans when a rare opportunity arises and cash is needed quickly – a sudden trip or an unexpected chance to turn a profit. Occasionally, utilizing a title loan might be a cheaper option for a short term loan that a cash advance, especially if it can be paid off quickly.
Ultimately, title loans, like all financial services, have a number of risks and rewards. There is no doubt that consumers should carefully weigh their options when considering this or any other form of credit. It is important to use credit wisely – title loans should not be seen as a long term solution for financial difficulties. For those who use them correctly, however, title loans can offer real benefits.