A title pledge, or title loan, as it is also called, is a practice that borrowers sometimes use to get money quickly. These are similar to a personal loan, but you are using your car as collateral. Although these loans are designed to help in a pinch, they are best avoided for several reasons.
Securities lending explained
A title loan is a loan in which you put the title of your vehicle back as collateral for a short-term loan. These loans usually last around 30 days, but some lenders may allow longer. Plus, they come with high interest rates.
They are often attractive to people who own a car but are in need of quick cash. You can usually get one in about an hour or less, depending on your situation, and you can still drive your car. The lender just owns the title.
Here’s the catch, though – if you take out a title loan on your car and don’t pay it off, you lose your car. Pledging the title is a huge risk for this reason.
To get a title loan, you must have equity in your vehicle and you generally must own it. Lenders typically only give loans for 25-50% of the vehicle’s value, so they can recoup their investment and make a profit by selling vehicles that have outstanding loans. Some may even install GPS monitors and make copies of your keys to help with the take-back process if you don’t pay.
Can I pledge my title?
Whether you can pledge the title of your car or not depends on a few factors. As with most loans, the eligibility requirements vary between lenders and your personal situation. Generally, you can follow these guidelines if you plan to pledge title to your vehicle for quick cash.
Ask yourself these questions:
- Do you own your car? – If the answer is yes, you may be eligible for a title loan. However, if you still owe money on a car loan, you probably don’t qualify.
- Is there equity in your vehicle? – If you own your car, its total value is equity. If you don’t, you have equity when your vehicle is worth more than what you owe on the loan.
- Can I reasonably afford to reimburse this? – Remember that if you withdraw a large amount of change, you must repay it quickly or lose your vehicle.
- How much do I have to repay more than what I borrowed? – Like personal loans, interest rates on securities loans can be very high, often up to 200% or more. It is possible, depending on the amount of your loan, that you will pay hundreds or even thousands more than what you borrowed.
- Is there a better way to get more money? – If you are in a hurry, but the need is not urgent, you may be able to find other, less expensive and risky ways to raise money.
If you answered NO to any of the first three questions, pledging the title probably isn’t for you.
Need more money without a title pledge?
If you have a loan on your car and need cash quickly, cash refinancing might be for you. This allows you to take the equity in your vehicle and use it in other ways. To qualify, you must have equity in your vehicle and meet all of the lender’s refinancing requirements.
Here’s how it works: Say you only owe $ 4,000 on your loan, but your car is worth $ 6,000. If you qualify for a cash refinance, you get a new loan on your vehicle for $ 6,000 and get $ 2,000 in cash. You can use the money however you want and pay off the loan before your new term ends.
Another option to consider
If you don’t own your car and need a break from spending, consider refinancing instead. Refinancing replaces the current loan on your vehicle with one, hopefully, with a lower interest rate.
Most borrowers refinance in order to save money each month on their car payments. You can do this by qualifying for a lower interest rate or a longer loan term. Both will save you money every month, but only having a lower rate saves you money every month. If you just extend your term but don’t lower your interest rate, you’ll end up paying more in the long run.
If you think refinancing might be the answer you’ve been looking for, you have options. Auto Express Credit wants to help you get the refinance deal you are looking for by putting you in touch with the right resources. Start Your Refinancing Journey Today!