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There are a number of important differences to ponder when considering auto title loans vs personal loans. Perhaps most significantly, because they are secured by a lien against the title to your automobile, auto title loans usually offer easier qualifying criteria, regardless of your credit history. Meanwhile, personal loans, which can be taken out without collateral, typically require stronger credit to qualify. Here, we’ll take a look at auto title loans vs personal loans to help you decide which one is right for you.
Understanding Personal Loans
Generally offered by banks, credit unions and online lenders, personal loans are provided as lump sums of money. Borrowers repay these loans over set periods of time, with specific monthly payments, interest charges and fees. Repayment periods typically run from one to seven years, often increasing with the amounts of money borrowed.
Because personal loans are typically unsecured, borrowers are not always required to pledge items of value as collateral to qualify. Instead, lenders consider the credit histories of borrowers, in addition to their incomes and the amounts of the debts they are carrying when they apply. Personal loans can be used for debt consolidation, medical bills, home repairs, major purchases, moving costs, weddings and other large or unexpected expenses.
Applying for a Personal Loan
The submission of a personal loan application starts the lending process. Information requested usually includes the applicant’s name, address and Social Security number. The requested loan amount, along with information about the employment status, income and outstanding debt is usually also required. Once completed and submitted, the application is reviewed and verified.
The applicant’s credit score, credit report, income and debt-to-income ratio is evaluated to help lenders decide whether to approve the loan application and what interest rate to offer. Analysts at the credit reporting bureau Experian say borrowers need credit scores of at least 580 to qualify for most personal loans. Generally, the higher an applicant’s credit score, the lower the interest rate they will be offered.
Upon approval, a loan offer outlining the monthly payments, interest rate and length of the loan is presented. Lenders disburse the funds once the borrower has accepted the loan approval and signed the personal loan contract. The required monthly payments usually begin within 30 days of the acceptance of the funds.
Costs of a Personal Loan
Personal loans usually carry fixed interest rates, so monthly payments stay the same for the duration of the loans. Costs typically include origination fees, which can often range from zero to eight percent of the loan amount. Some personal loan lenders impose prepayment penalties if loans are paid off early. They may also charge late fees for payments that come in after the agreed-upon due dates. The length of the loan also has an effect on the total cost. The longer the loan term, the more interest accrues, all else being equal.
Understanding Title Loans
Title loans, also sometimes referred to as car collateral loans, can be helpful when borrowers have urgent expenses but aren’t eligible for traditional bank loans because of credit problems. Auto title loans let borrowers use vehicles, registered in their names, as collateral. To qualify for car title borrowing, automobiles must be of sufficient value to support the loans – and borrowers must prove they have the incomes to make consistent payments. Title loan borrowers must also be at least 18 years old and live in the states in which they apply.
Depending on the policies of the lenders, the states in which applicants reside, and their incomes, title loan amounts can be as high as half of the equity applicants have in their vehicle. Lenders determine the vehicle value based on the make, mileage, year and condition. ChoiceCash vehicle secured loans permit applicants to borrow as little or as much as they like, as long as the amount requested is within their approved range.1 Title loans also permit borrowers to retain use of their automobiles, as long as payments are made according to the terms of the agreement.
Documentation Required for a Title Loan
Borrowers are required to present a valid government-issued photo ID and proof of steady income – whether from traditional employment or other sources, such as Social Security or retirement benefits. They also need to provide copies of the title to the automobile, along with clear, up-to-date photos of the vehicle, inside and out. Images of the Vehicle Identification Number (VIN) and odometer reading are also needed. In some cases, applicants may also need to submit a DMV form granting the lender permission to place a lien on the vehicle.
Title Loan Costs
Costs associated with title loans include interest payments on the loans, which can be higher than those of personal loans, but competitive with similar types of loans. Interest rates vary, depending on the states in which the loans are issued, and the lender that the borrowers choose to work with. Here, it should be noted ChoiceCash title loans carry no prepayment penalties, or balloon payments.1
Borrowers may face late payment fees and returned payment fees, when making payments late, or when payments are returned due to insufficient funds. Payment processing fees when paying by card or using certain money transfer services may also be encountered. With some title lenders, rollover fees may also be required if borrowers need to extend their loans past the agreed-upon payoff dates – ChoiceCash however does not impose any rollover fees.
Perhaps the most significant cost associated with borrowing against vehicle titles occurs if a borrower defaults on the vehicle-secured loan. Upon loan funding, a lien is placed against the vehicle title. While the lien is removed when the loan is paid in full, the lien gives the lender the right to recover and sell the vehicle if the borrower defaults on the loan. In such instances, monies over and above those owed to the lender are paid to the borrower after the vehicle is sold, but the borrower may be required to pay any shortfall that remains if the vehicle sale does not cover the outstanding loan amount.
Applying for a Choicecash Title Loan
Although each auto title lender follows its own application process, the ChoiceCash process is designed to be simple and efficient so loans can be handled quickly. The application typically takes about five minutes to complete and, in many cases, a decision is provided within an hour. After a loan officer reviews the documentation and confirms approval, funds are generally available within one business day, and sometimes even sooner.1
The ChoiceCash vehicle title loan process includes:
- Submission of a brief form online or applying by phone at 855-422-74021
- Turning in the required documents upon approval
- Signing the loan agreement
- Delivering the vehicle’s title
- Getting the cash
Key Differences Between Personal Loans and Auto Title Loans
One of the most significant differences between personal loans and car collateral loans is the credit requirement. As mentioned above, a credit score of at least 580 is frequently required to qualify for personal loans. Meanwhile, auto title loans can be had regardless of borrowers’ credit histories in most cases, because their automobiles serve as collateral.1
Personal loans can be for higher amounts, with longer repayment times, at lower interest rates. However, car collateral loans may be approved faster, which can make them better suited to situations in which applicants need cash quickly.
Defaulting on personal loans can trigger collection calls, legal action, negative entries on borrowers’ credit reports and significant drops in their credit scores. Defaulting on auto title loans can result in all of the above, plus loss of the car, truck or SUV pledged as collateral. This is why it is important for borrowers to be certain they can fulfill the terms before accepting a title loan.1
Auto Title Loans Vs Personal Loans: Which Is Right for You?
At this point, the differences between auto title loans and personal loans are pretty clear, so here’s a quick recap. Personal loans tend to work best for borrowers with high credit scores who need larger amounts of money and extended loan terms. Borrowing against vehicle titles works well in situations in which cash is needed quickly, and borrowers lack access to traditional means of borrowing because of their credit histories.
Simply put, car title loans offer an easy and convenient way to get out of a financial jam – while allowing borrowers to keep their cars and drive them as usual. If this sounds like what you need, apply for a ChoiceCash car title loan today. You may be pleasantly surprised to see how quickly and easily you can get the cash you need.1
