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HomeBankHow Does a Title Loan Work? Explained

How Does a Title Loan Work? Explained

A title loan may seem smart when you need money fast, but there are several alternatives with lower interest rates and no risk of losing your vehicle. Consider the following options instead of a title loan.

Payday alternative loan

Payday loans have a bad rap – and for good reason. Traditionally, payday loan lenders used predatory tactics to prey on people who needed a fast influx of cash. Payday loans are banned in some states, but you can get a payday loan from a storefront in others.

Payday alternative loans (PALs) are different. They are offered through credit unions and are regulated by the National Credit Union Administration (NCUA), which caps interest rates at 28%.⁴

You must be a member of a credit union to access a PAL. Since credit union membership is often limited to specific communities or groups (such as military members or employees of affiliated businesses), you may have to shop around to find one that’ll work for you. But if you qualify, a PAL is an excellent alternative to a car title loan.

Learn more about payday loans and other alternatives that can get you cash quickly when needed.

Personal loan

Although personal loan lenders will check your credit score when you apply, many banks and credit unions will approve an applicant with a subpar credit score.

If you have a poor credit score, you’ll likely have to pay a higher interest rate on a personal loan, and the loan term will probably be shorter than if you have good credit. But even so, a personal loan will have more favorable terms than a title loan for someone with bad credit. This makes them a much safer option.

Credit card

A credit card can be a less costly option for short-term needs, especially if you qualify for a 0% APR promotion. If you have bad credit, it might be harder to qualify for a credit card; however, you may be surprised if you shop around and see what’s out there.

However, if you already have a credit card, using it to cover your expenses in the short term can be an acceptable alternative to a title loan. Find out what else you should use your credit card for.

Family or friends

If you need money fast, you can always ask a family member or trusted friend if they would lend it to you. If you do borrow from family or friends, however, it’s essential to have a solid repayment plan in place. Failure to repay a loan from a loved one can lead to strained relationships in the future.

Debt negotiation

Consider contacting your creditors directly to negotiate your debt. You could qualify for more favorable repayment terms or a lower interest rate. After all, it’s better for a lender if a borrower repays the loan than it is for them to send it to collections.

Tax refund

When you receive your tax refund, consider allocating the money toward your financial needs instead of taking out a loan. You can also use your tax refund to pay down debt.

There are many other smart things to do with your tax refund that can help you improve your finances – but if you need immediate cash, it’s a safe alternative to taking out a title loan.

Assistance programs

Look into government or non-profit programs designed to help those in financial distress. These emergency loans are designed to help people in need pay for essentials, such as rent, groceries, or utilities.

United Way runs a hotline you can call to explore local health and human services programs. Just call 211 to connect and find out about options in your area.



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