Are Car Title Loans a Secured Loan?
The short answer is yes, a title loan is secured, but the answer is a bit more complicated than that. If you want to know how a title loan is secure, the differences between a secured and unsecured loan, or why title loans are good in general, then continue to read on.
What is a Secure Loan?
Secured loans are loans that are protected with an asset. This means that valuable assets like your home, or in this case your car, can be used as collateral according to Experian. A lender will hold your title until it is paid in full.
Secured loans are the most common way borrowers get large amounts of money. Lenders typically only loan large sums with the promise that it will be repaid one way or another. Putting your car on the line shows lenders that you will do all you can to repay that loan.
A secured loan means you are ensuring your loan will be repaid. There is a risk if you can’t repay a secured loan. If you fall behind on payment and default on the loan, the lender can sell your collateral to pay off the loan.
What is an Unsecured Loan?
An unsecured loan is basically the opposite of a secure loan. It is a loan that is supported only by the borrower’s creditworthiness, and not any type of collateral. Borrowers must generally have a high credit rating to be approved for an unsecured loan.
Unsecured loans include:
- Personal loans
- Student loans
- Credit cards
Lenders are taking a risk by making this kind of loan, due to the fact there is no asset to recover on the chance you default on the loan. That is why interest rates are typically higher for unsecured loans.
Borrowers must generally have a good credit rating to be approved for an unsecured loan.
Why a Car Title Loan is a Great Option
In general, car title loans provide you with a larger loan amount, as well as better repayment terms. The interest rates are more affordable than what an unsecured loan can provide. Unlike other types of financing, car title loans don’t have a complicated or lengthy approval process.
The type of vehicle you have also matters, be it a car, truck, or motorcycle—it all makes a difference. Car title loans make it so you have an opportunity to use the value of your vehicle to get approved for a loan. It’s possible that even those with bad credit may be eligible to get a loan.
Most lenders will provide you with a car title loan without even checking your credit, so long as you can prove you have a reliable source of income and a car worth more than the loan you are requesting.
Car title loans are also an excellent option for borrowers who need their money immediately. In a lot of cases, you can walk out with money in hand on the same day you apply for the loan.
And because a lender doesn’t keep the vehicle, you can continue to use your vehicle while making payments on the loan. The only way to lose the vehicle is if you default on the loan and your automobile is repossessed.
What Happens if You Default on a Secured Loan
If you default on your loan, the assets you put up for collateral when getting the loan will be repossessed ASAP.
Be warned, in most states, lenders are not obligated to notify you that your collateral assets have been seized and sold off. Also, if your repossessed collateral doesn’t sell for the amount of money you owe, then the lender can demand payment on the remaining balance.
In a lot of cases, the repossession of your collateral assets can remain on your credit report for up to seven years. So be sure to pay your bills on time. If you have trouble keeping up with payments, contact your lender. They may be able to offer an extension. You may also set up automatic payments so that you never forget the due date.
We at Max Cash® wish to help you in any way that we can. 5 That is we will try and guide you through the nitty-gritty of getting a loan. Be it a business loan, commercial loan, or just refinancing.
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