Borrowing Money Against Your Car
By Space Coast Daily // November 28, 2019
Borrowing against your car is standard practice to raise money when you are backed into a corner. Numerous financing companies offer this type of loan.
Some of them will even let you borrow money if you still have not finished paying off your vehicle.
The crucial ingredient for car title loans in Anaheim is equity. Your automobile should have enough equity on it that will cover the amount of debt you are looking to take on. You can borrow only $100 or as much as $6,000, depending on the equity in your vehicle.
Do You Keep Your Car or Not?
One common misconception about title loans is that you need to surrender your car. That is far from the truth. The concept is similar to mortgage refinancing. When you borrow against your home, you do not leave the house until you fully pay the debt.
It is the same with the auto title loan. You still get to drive your car around even while you are settling your account. The terms will depend on the company, but the payment period can range from one month to as long as three months.
Short-term Loan vs. Title Loan: What is the Difference?
Taking out a micro-loan is different from car title loans. But they do have several things in common. For instance, they charge higher interest rates compared to long-term loans. Sometimes, the collection practices of some of these companies border on harassment.
With that said, car title loans offer better terms when you find yourself with short-term debts. For instance, and this is just an example, a micro-loan will hit an annual percentage rate of 400%. In comparison, the title loan will probably reach an APR of around 250-300%.
There’s also the payday loan, which works exactly the way it sounds. You borrow an amount at a set interest rate with the agreement that you pay a portion of your next paycheck to settle the debt. But the room for error is so narrow that a $1,000 debt can quickly become $40,000 if you are not careful.
Pros and Cons of Car Title Loans
As with all financial instruments, car title loans have their respective pros and cons.
The advantage of this type of loan are:
- The approval is easy and quick, which is excellent news if you need the money right now.
- You do not need a reason for how you will use the funds.
- Financing companies will not check your credit score.
- You keep your vehicle.
- The lenders do not care if you have no job.
The disadvantages, meanwhile, are:
- The companies charge higher than average interest rates.
- You risk losing your car, especially if you have no steady income.
Also, you are not off the hook even if they confiscate your vehicle. If the financing company sells your car at a lesser cost than the amount of the loan, you will be on the hook to pay the difference.
However, you have other options to raise money other than car title loans. The most obvious, of course, is to borrow from well-off relatives and friends.
The downside is that you risk losing face.
Another way is to shop around at credit unions and banks for short-term loans. Sometimes, the terms of these short-term loans are better when you compare them to title loans.