Title Pawn – Things You Should Essentially Know
Whatever one may say about title pawn, the picture is that most of the Americans take out this type of loan no matter how high the interest is and that means it’s a loan needed by most of the people. However, it’s also a fact that due to its high interest, a situation in which you have to take this loan is really bad and it’s also true that title pawn provides you money in such an emergency situation when all other doors are closed for you. Here are a few bits of information you need to know if you are caught in such a situation.
Per se, title pawn is an easy loan to get because all you need is a lien-free title of a car; in simple words, you should have a car with no debt on it. You will have to give its title to the lender; he will put a lien on it and provide you cash. However, you can still drive the car, but only until it’s taken back in the event of your failure to pay the interest, just like that of the 17% of title pawn customers.
Title pawn should be your last choice to seek a loan, when you are exhausted with all other options for getting money. And when it becomes necessary to take out a title pawn, make sure that you know the following things in order to avoid the heaps of trouble in the future that may come with title pawn.
Most title pawns have a payback term of 30 days at the end of which you should pay the principal and interest. If you are unable to pay, there can be rolling over of the loan, but you will be charged fees plus interest for the next month (30 days) too (In some states have usury laws because of which amount of interest is restricted). You can get a longer payback term from some lenders with interest-only payment and when the term is over, a huge balloon payment (a large payment due at the end of the term which consists of principal plus the interest for the last month) becomes due.
Usury laws are laws that limit the interest amount a lender can charge you, often at 36% APR. These laws exist only in a few states.
Rollovers, Penalties, Fees and Add-ons
Title pawn lenders usually charge extra fees for being less than upfront. You may even need to agree to some add-ons so as to get the loan and most title pawns carry a penalty for early repayment. If you can’t pay back your loan at the end of the term, the loan can be rolled over for another month, but you should pay fees and interest for the next 30-day period too.
Rolling over, in other words, means taking out the same loan again for another month. Some lenders allow you to roll over the loan for indefinite times, while some others limit the number.
Early repayment penalties make sure that if you pay back the loan early, the lender won’t miss out all the interest you didn’t imagine you’d have to pay by doing so. Early repayment penalties are commonly charged by lenders, but would be hardly found in paperwork and lenders would rarely inform you about them.
Fees for title pawns often cost from $10 to $25 for every $100 of loan and that’s apart from the interest on the loan. These extra fees may include document fees, processing fees, origination fees, lien fees and late fees. Thus if you borrow $500 as loan, you may have to pay up to $115 extra as fees. Another fee called a repossession fees is often charged by lenders. Actually these are illegal, but are commonly charged by lenders, thus costing even more to the borrower for the privilege of getting her/his car repossessed and sold out by the lender.
Add-ons are common with a title pawn. For example, some lenders make it necessary to take life insurance with title pawn so as to get back their money even if you die before the repayment of the loan. Lenders even may require you to take breakdown insurance which secures their repayment in the event of breakdown of the car. Another common add-on is roadside assistance.
Advantages of Title Pawn
Though you are ripped off when you take out a title pawn, this loan has some advantages too.
- Firstly, you don’t have to go through a lengthy or complicated process of approval. Since you have solid collateral (your car title) you get this loan easily, even if you don’t have a good credit score. Actually, most title pawn lenders don’t even check your credit score, but approve your loan. They have no problem to do so as long as you have a dependable income source and a car costing more than the amount of loan you want.
- Title pawn is also a good option when you want money immediately. Right upon the agreement between you and the lender over the terms and loan amount, you receive money. In several cases, you can even leave the lender’s office with your cash in hand just the same day you apply for a title pawn.
- Lastly, even if a lien is placed on your car by the lender, you can still use the car while paying interest on the loan. There is a risk of losing the car only if you fail to pay the loan.
Disadvantages of Title Pawn
- The biggest and apparent disadvantage of title pawn is its high interest rate. Sometimes, these rates can even be substantially higher than credit card rates and even may go beyond 100%. Only in a few states, there is a restriction on these rates as mentioned above.
- Another disadvantage of title pawn is that it’s a short term loan; so, you have to pay it back quickly. If you can’t do that, late fees go on rising making the balance even higher. This may, in most cases, result into the repossession of the vehicle, which in turn results into a lot of other issues.
It’s recommended that if you have to take out title pawn, choose the least expensive option. Look for other loan options, credit cards, consumer loans, advance cash and also loans from friends or family members. But if you have to take out title pawn, ensure that you have read and understood the terms thoroughly. Also make sure that you pay back on or before the due date.