4 Tips to Consider Before Applying for a Car Title Loan

“We developed microfinance to fight loan sharks – I was telling people don’t go to loan sharks – not trying to take advantage and make money for myself. I would be a junior loan shark if I did… It is not a panacea.” – Muhammad Yunus

What do car title loans and microfinance have in common with each other? In essence, a car title loan falls under the microfinance industry. Furthermore, according to Yunus’s above quote, the microfinance industry was developed to prevent illegal money lenders (loan sharks) from plying their trade. Of course, loan sharks still exist; however, they are more likely to operate on the black market and underground. Therefore, the common citizen cannot be taken advantage of.

Microfinance and car title loans

Before we study a number of tips that you need to consider before applying for microfinance, let’s have a look at a solid definition of the microfinance industry as well as what a car title loan is.

Microfinance

In a nutshell, Microfinance is the “provision of savings accounts, loans, insurance, money transfers and other banking services to customers that lack access to traditional financial services, usually because of poverty.

Car title loans

Furthermore, a car title loan is a “short-term loan in which the borrower’s car is used as collateral against the debt. Borrowers are typically consumers who do not qualify for other financing options.

Tips to consider before applying for a car title loan

Now that we understand what a car title loan is, and how it fits into the microfinance industry, let’s now contemplate several points that you should take into account before applying for microcredit:

Collateral

A car title loan takes your vehicle’s title deed as collateral for the loan. In other words, should you not be able to repay the loan, the lending financial institution will take ownership of your car instead of the outstanding funds. Furthermore, you need to be the owner of a wholly paid-up vehicle before you can use it as collateral against this loan.

Loan amount

The total loan amount that you may apply for will never be more than 25% – 50% of the value of your car. Therefore, if your car is valued at $1000, the maximum loan that you may apply for is $250 to $500.

Exorbitant Interest

The interest rate on microfinance loans is usually much higher than a personal loan from a traditional bank or traditional financial institution. Ergo, it can be as high as 30% per month or 360% per annum. The reason for such a high interest rate is that microloans are considered high-risk finance. Therefore, the interest rate will always be higher. On the other hand, the good news is that this interest rate is much lower than that of a loan shark.

Repayment period

An average car-title loan repayment date is usually 30 days from the time that the loan was approved. However, car title loans Fontana offers a 36-month repayment period. This sounds like a lot of time. However, should you not be able to repay the loan within the stated timeframe, some micro-financiers will extend the repayment date, but they will add additional interest, so your repayment figure will be excessive.

Author: Robin Gupta