If you happen to borrow money through a credit card, then you likely will not have to put up collateral. Credit cards are unsecured loans in which the lender gives credit in exchange only for your promise to pay. If you’re trying to get your hands on actual, physical cash, however, you may have to pony up some collateral. Collateral is something that can guarantee the loan, creating for the lender a secured interest in property. If you happen to default on the loan by failing to make payments, the lender will have the right to repossess the collateral through a specific legal process. For many people today, getting a personal loan means using a car title as collateral.
Understanding title loans
Title loans, as they are popularly known, are the slightly more affordable big brother to payday advance loans. These loans are typically given out by finance companies that charge high rates of interest. While the interest amounts are capped by state law, many companies will go as high as possible, charging close to 100% annual interest on these loans. If you are thinking about taking out a loan using your title as collateral, you should know the risks and shop around for the best deal before finally signing up. Some title lenders are better than others when it comes to both rates and terms.
Having the right insurance
Before you can take out one of these loans, you’ll need to check your car insurance policy. If you have only a basic insurance policy, your lender likely won’t approve the loan. This is because basic car insurance only covers the damage to another person’s car if you get in a wreck. In this situation, your lender would be out of luck if you happened to get in an accident and total your own car.
If you have the proper insurance, lenders will require you to call and add the lender as a beneficiary on the insurance policy. This means that if your car is wrecked, the lender will receive the insurance payout to ensure they get their value back.
Handing over the title
After you choose a title loan company and handle the insurance process, you’ll have to hand over your signed title. The title loan company will sign the title as a lien holder. This means that until the loan is paid off, they will have a legal right to your vehicle. With that in mind, you won’t be able to sell the car while the loan is still in repayment. In short, the lender will become something like a co-owner of the vehicle, and their rights to the vehicle will trump yours in most situations. Lenders won’t assert their lien holder’s rights unless you default on the loan agreement, however.
With a loan of this nature, you will make monthly payments according to whatever payment schedule is listed in the loan terms. You will typically pay back the loan over the course of six months or a year. When you finally pay the loan off, the lender will note on the title that the lien has been removed, and you will get back the title to your car. You’re then free to do with it what you please without having to worry about the lender any longer.