7 Common Myths About Car Title Loans (Busted!)
One thing that has always struck us is how many myths are floating around about title loans. We are hoping to bust a few of these myths on this page.
Myth #1: Paying Back Your Title Loan Improves Your Credit
As we all know; if you take out a loan, you will likely see an improvement in your credit score, assuming you meet the repayments on it. Therefore, it stands to reason that taking out a car title loan and paying it back would see an improvement with your credit score, right? Well, not necessarily.
According to Dwayne Dumesle of Titlelo Title Loans, “Most car title loan lenders will not report your repayment to any of the credit score agencies. You may get the odd one that does, but most do not. In fact, for many people, the only time any credit score agency will be told about the loan is if you fail to pay it back by on-time”.
If you are looking to borrow to increase your credit score, then car title loans are probably not going to be for you.
Myth #2: The Interest Is Sky-High
OK. This isn’t strictly a myth. The interest rate on car title loans will likely be a lot higher than with your standard type of loan. This is due to the people lenders are dealing with. For the most part, they deal with the riskier borrowers, and the interest rate reflects that risk.
Average Amount in Interest for a $400 Loan
|Auto Title Loan||$300|
|Deposit Advance Loan||$240|
|Bank Small Dollar Loan||$230|
That being said, car title loan interest rates are never going to be as high as certain types of loan (e.g., a payday loan). If you shop around for your car title loan, then you may find that you can get a decent deal. Again, still not as ‘cheap’ as your standard type of loan, but it could be fairly affordable and probably not as high as you thought it would be.
Myth #3: You Can’t Get Approved If You Have a Poor Credit Score
You have to remember that car title loans are designed for those people who own a vehicle and simply do not have anywhere else to turn for their borrowing needs. This means that most lenders are not going to be that stressed over your credit history.
With most lenders, they will not even carry out a credit check on you. All they need to know is:
- You legally own the vehicle (i.e. it can’t be a rental or have a car loan on it)
- You have the means to pay the loan back.
Obviously, this is going to be reflected in the interest rate. After all, not checking your credit score means that the lender is going to be assuming a greater risk when they work with you on your loan. If you want a better offer, you will normally have to find a lender that checks credit scores, but these can be few and far between.
Myth #4: You Lose Access to Your Vehicle When You Take Out a Title Pawn or Title Loan
In the past, this is something that would happen. You would go to a pawnshop, and you would be asked to hand over the keys to your car. When you have paid the money back in the agreed amount of time, you would go and collect your keys and drive the vehicle away.
While this is something that does happen with pawnshops however, most car title loan lenders will not take your vehicle’s keys. What you will need to do is sign over the rights to your vehicle if you fail to pay your loan back in the agreed amount of time.
This is good enough for them. After all, you will have signed a contract that states that the vehicle is theirs if you fail to hold up your end of the bargain.
Myth #5: You Lose Your Vehicle As Soon As You Miss a Repayment
This is going to be completely dependent on the lender. However, to be honest with you, the vast majority of them are not going to be in the business of seizing your vehicle if you miss a repayment. This is because they can make more money from you if you stick with your loan.
If you are struggling to meet repayments, then it is always good to talk to the lender. If it is an ongoing thing and you are unlikely to ever be able to pay them back, then, yes, you will be required to hand over your vehicle and it becomes their property. However, most lenders are likely to work with you. This may mean that they are happy to extend the terms of your loan.
Myth #6: Car Title Loans Are Predatory
Again, this is going to be dependent on who you work with for your car title loan.
We are not going to deny that there are some predatory lenders out there. Sadly, that tends to happen in the world of lending no matter what type of loan you are opting for. However, what we can say is that the vast majority of lenders are operating “above board”.
In recent years, states have introduced a lot of legislation designed to make borrowing on a car title loan so much simpler and safer to do. Therefore, if you stick with one of the more reputable companies, then you should be fine.
Other than this, the only real “predatory” part of car title loans will be the interest rates. However, as we said before, it is pretty simple to shop around and find a decent deal here. Lenders tend to be incredibly competitive as they want your business.
Myth #7: It Is Difficult To Get a Car Title Loan
Not really. It is becoming a whole lot simpler. Most car title loans can be applied for online. Perhaps the only ‘difficult’ part of the process is how much paperwork you need to complete. Hopefully, that helped to bust a few of your misconceptions about car title loans. Of course, we would still advocate that you take out this loan as an absolute last resort. Other lending options will still be better for you. However, we promise you that car title loans are nowhere near as bad as you may have been led to believe.