In order to understand how does car title loan work, you need to understand the basic mechanics of the financial system. It is no secret that it is really hard to get approved for a loan if you don’t have some sort of collateral. The car itself is not seen as a reliable way to give you collateral since the value will depreciate in no time at all.
So what exactly is car title loan? It is actually an investment type loan which is backed by a car. It allows you to borrow money against the value of your car so that you can pay back the loan with interest and hopefully make some profits on the equity.
What is the basic process of how does car title loan work?
Usually, the loan is secured by your vehicle. The lender will issue you a lien on your car so that he can be repaid should you default on the loan.
Because the lender has a lien on your car, he will collect a fee from you and agree to make a minimum monthly payment to you. This fee is taken from the equity of your car, as the lender will hold an amount equal to the value of your car.
You can either get a fixed rate loan or a variable rate loan. The fixed rate is a bit more expensive because you cannot change the terms of the loan once you have signed up.
A variable rate loan has a higher interest rate but comes with a lower risk factor. You would not be able to withdraw the loan once you have started it. The down side of this is that you have a higher risk of not being able to make the payments once you have started the loan.
Evaluate the company rate offer
If you want to use the loan as a method of starting up a business then you have to find a financial company that offers both fixed and variable rate loans. They must also offer a competitive interest rate. Make sure to compare the rates because there are several financial companies that offer the same loans at different rates.
To access your loan simply go to a lender, sign the agreement and pay the loan off in a timely manner. After you have paid the loan off, you will receive the lien back on your car. Since you already have a lien on your car, you can now sell it to earn some additional income.
Before applying for a car title loan, it is a good idea to do some research on the company. Make sure that they are legitimate companies that are licensed to do business in your state.
Consider the interest rate
Another thing to consider is the interest rate that they offer. The interest rate will depend on how long you intend to keep the car, as well as the current value of the car.
Check out the APR (Annual Percentage Rate) and make sure that it is below the average interest rate for that category. Sometimes, the interest rate will go up after you have been with a certain financial company for a certain period of time.
How does car title loan work? You just need to use a professional financial company to make sure that the process is simple and painless.