One thing that can disrupt one’s financial progress is emergency occurrences, which we never imagine and they come up suddenly. These occurrences can be anything maybe you need money for emergency medical bills, for your car repair, home renovation, etc. The most common way to solve this problem is title loans as they offer you quick cash with very little hassle.
For some, title loans are often looked like the last option when you need to borrow a larger amount of money as early as possible, and you have no options left for help. Title loans are a convenient way for people with low credit scores to access a larger loan amount when they need it.
What is a title loan?
A title loan is a secured loan where a borrower uses the title of their motor vehicle (such as a car, motorcycle, truck, etc.) as collateral to secure the loan. If the borrower is unable to repay the loan amount, the moneylender is then subject to claim the asset utilized as a guarantee. The financing costs for secured loans like collateral loans are decently lower than that of the unsecured loans. Sometimes the fear of losing your vehicle may make you feel stressed. With Title Loans, you can put your stress and worries at rest.
Requirements for a Title Loan:
There are not too many requirements in order to get approval for a title loan.
- First, you must have a vehicle of value with a clean title.
- Second, a valid driver’s license
- A government-issued identification.
- You must have proof of registration for the vehicle in your name.
How do Title Loans work?
This type of loan is basically a long-term loan that gives borrowers quick access to cash. With a title loan, lenders place a lien on your car title in exchange for the loan amount. You can put a hold on to the title of your car as collateral.
Title loans are different from other loans because they are secured loans. This means the lender needs collateral. The lender has an assurance that they won’t be left empty-handed. Unsecured loans do not require any collateral. They are based on your creditworthiness, so they will require a credit check. Such loans are unavailable to people with low or no credit.
What is a credit score?
A credit score is a number that evaluates a consumer’s creditworthiness and is based on credit history. Lenders use to determine whether or not to loan you money and at what specific terms.
How Does Your Credit Score work?
Your credit score depends on your payment history. Getting a title loan would have the greatest impact on the payment history of your credit score.
Unsecured loans depend on your credit, and they are inclined to make a much more significant impact on your credit score. However, loans that are secured are based on collateral and have the potential to affect your credit score significantly. So, a title loan can both improve your credit score, but it also has the potential of damaging it.
How Can Title Loan Improve Your Score?
If you pay off your loan timely, then your payment history will start to look significantly better. If you manage your budget wisely, then a title loan has excellent potential to give you a far better credit score.
How Could They Damage Your Score?
If you do not make your payments on time with any other loan, then your credit score might go down. As a result, this will ultimately make your credit report look less favorable to other lenders.
Role of credit score in the title loan process
Title loans are based primarily upon the title, the value of the vehicle, and also the borrower’s ability to repay the loan. Credit is not even been used in the approval process. The value, make, year, age and mileage of the car is used, which can have a more significant impact on how much money can be borrowed or if a loan will be approved.
Whenever you pay off a loan on time, your credit score automatically goes up. Such loans typically do not have any effect on your credit because you don’t need a credit check when you apply for it. A title loan is a secured loan where you use your car as collateral. Secured loans do not require a credit check whereas unsecured loans require credit checks because you don’t have to put up any guarantee for the loan. When you apply for this loan, you are borrowing money against the value of your car.
Can applying for a title loan affect your credit?
A title loan can have both positive and negative impact on your credit score, which is explained below:
Positive impact: Inquiring for credit is positive, which means that a customer is active. Periodic inquiries can create positive attributes and increase various credit scores.
Negative impact: Alternatively, several, repeated, and recent inquiries can sometimes have a negative impact on your credit.