A car title loan is a type of secured loan where the borrower uses his or her vehicle as collateral in order to borrow money. Borrowers who avail these loans permit the lender to place a lien on the title that they have to their vehicle. They surrender the hard copy of the ownership rights to the lender. It is returned to them when they repay the borrowed amount in full. If the borrower defaults on the loan, the lender is within his rights to sell the borrower’s vehicle in order to clear the outstanding debt. Car title loans are normally short term in nature. They have higher interest rates than other types of credit. It is common for lenders to not check the credit history of borrowers while considering their eligibility. They only look at the value and condition of the vehicle that is being offered as collateral. It does not take long for the borrower to obtain the money from the lender.
Borrowers are attracted to this type of credit because of the many benefits that it offers. For one thing they are simple and easy to get. They can get the money without having to go through the long winding process that traditional sources of borrowing money often entail. The credit score of the borrower is often not checked. There is no lengthy application form that needs to be cleared by an officer in a suit like those sitting in a bank. The interest rate on this type of credit is less than that of a payday loan.
The question that would naturally arise in the mind of most borrowers is regarding the documentation needed to borrow money in this manner. The borrowers need to take with them the ownership rights to the vehicle, picture identification, vehicle registration, proof of address and proof of income. In case borrowers have any further doubts regarding this method of borrowing money, they can always talk to consultants who specialize in this field. They will put them in contact with the right agencies who offer services of this nature.
The type of interest that is charged on these kinds of advances is simple interest. This means that interest is charged on the amount that the borrower owes i.e. the outstanding balance on his advance every day until it is repaid. Every payment is first used to clear the account charges such as late fees and charges on bounced checks, and then to clear the interest, and finally the money is used to clear the outstanding balance. One of the factors that borrowers often examine is the annual percentage rate. This is a calculated rate and not the interest rate on the advance. In addition to interest, this rate takes into account certain prepaid charges, such as an administration fee. The rate involves spreading the prepaid finance charges over the life of the loan. That is why the annual percentage rate is higher than the interest rate. But it also accurately reflects how much the borrower is required to pay.