Title loans are an excellent way to meet the financial obligations of emergency expenses without needing to dip into your own pocket right away. However, considering title loans have an average interest rate of 300%, learning how to repay the title loan in one fell swoop is the best strategy for a borrower. Always avoid rolling your title loan into another short-term loan, and instead, complete your payment right away or work with a lender on a payment plan.
What is a Title Loan?
A title loan is a short-term secured loan that offers borrowers a relatively small sum of money at a higher interest rate. Being secured, the borrower is required to put down collateral. For a title loan, this means providing the title to some form of property in return for the loan. As an example, a title loan on a motorcycle will allow the motorcyclist to borrow money in return for exchanging the title for their bike, to be returned only after completing all payments.
For most title loans, the repayment period is as quick as 30 days. While this may seem doable due to the fact that most title loans are only for a couple hundred to a couple of thousand dollars, making the payment on top of already existing bills can be a challenge for some.
Benefits of a Title Loan
There are a number of benefits to title loans that make this form of debt a viable option for many borrowers:
- Quick access to cash, typically the same day as approval
- Short processing time means approval decision will occur shortly after the application
- Few application requirements
- Most lenders require no credit check
- A borrower can continue to drive their motorcycle or vehicle in most cases
What Can a Title Loan Be Used For?
The majority of lenders do not specify that a title loan needs to be used for a specific purpose, meaning the borrower can use the funds on whatever they wish. However, it’s best to only borrow the exact amount of money you need for the emergency expense due to the higher interest rate, even if you are offered more.
10 Tips for Repaying a Title Loan
The majority of title loans will allow a borrower to take out a sum of money that equates to 25-50% of the current value of their motorcycle, car, RV, or boat. This means that most title loans fall between $100-$10,000 on average, so learning how to repay this sum of money fast, especially if it’s on the higher end, should be a top priority. Use the following 10 tips to meet your financial obligation quickly:
1. Tighten your budget months in advance
Before taking out a loan, evaluate your budget to see how much you can afford. If your title loan is a lump sum repayment, consider what you can afford in a single month. However, if your title loan is broken down on a monthly payment basis according to a plan, then you will need to factor in monthly repayments.
2. Only borrow exactly what you need
When taking out a title loan, considering the high-interest rate, it’s important to only borrow what you need and nothing more. You may be provided with access to more money than you request, but don’t be afraid to ask the lender for a smaller amount.
3. Consolidate any existing debt you currently have
If you already have existing debt outstanding, adding a title loan payment on top of it will be an issue for some. Consider consolidating your debt into one single loan so that you only need to worry about one interest rate and one monthly payment.
4. Pay off your balance early to save money on interest
The longer you allow a balance on your title loan to remain is just the longer amount of time you are allowing interest to build. Pay off the loan as much as possible whenever you are able to in order to lower the amount of interest you are being charged.
5. Inquire about payment plans the lender may offer
Some lenders may be willing to offer a payment plan rather than requiring the loan to be paid in full within a month or sooner. Speak with a lender to see if they offer installment plans of equal amounts spread out over a number of months.
6. Improve your credit score before applying
While a credit check isn’t likely to be performed during the application process for a title loan, a lender may still take a soft check on your score into account when giving an interest rate. By taking the time to improve your score prior to applying, you can potentially receive better interest rates.
7. Work with a debt management counselor
A debt management counselor can help you to organize the various debt you have while also helping you build a repayment strategy for your title loan. Debt management counselors specialize in helping individuals with debt consolidation and strategic repayments.
8. Build up your emergency fund before you ever apply
Similar to focusing on building your budget prior to applying, building up an emergency fund can be beneficial. While you may not be able to have the money transferred in time, having an emergency fund in existence means repayment of the title loan can occur right after borrowing.
9. Round up any monthly dues
Assuming you have a title loan that comes with monthly dues, consider rounding up each month to pay off more of the debt. For example, if you owe $70 each month at a minimum, try to pay at least $100.
10. Speak with friends or family if repayment is an issue
Finally, if you are unable to keep up with payments, consider reaching out to friends or family who may be willing to cover some of the expenses you face.
Use a title loan to cover your emergency expense
Covering emergency expenses is an absolute must, but few people nowadays have the ability to meet hundreds of dollars, let alone thousands, in expenses with little notice. A title loan can be an excellent choice for a borrower so long as they can make the entire repayment back in time and in full to avoid losing their collateral.
