What are title loans?
A title loan is a type of loan which you can get by declaring an asset as collateral. This loan is sought-after mainly because lenders don’t take the applicant’s credit report into account. Another plus point of these loans is that you can borrow an amount as less as £100. However, these loans come with exorbitant rates of interest.
A car title loan is the most common form of a title loan, wherein you declare your vehicle as collateral against the title loan. Title loans are similar to Logbook loans in the UK. Logbook loans are regulated by the Bills of Sale Act 1878 and the Bills of Sale Act (1878) Amendment Act 1882 in the UK. If the lender has the bill of sale registered in their name, they have the authority to seize the vehicle in case of a default.
How does a car title loan work?
A prerequisite to borrowing a car title loan is owning a vehicle, after which you need to sign the title over to an auto loan company. You can then borrow up to 25% of your car’s worth from this lender, while they keep your vehicle’s title to cover for the loss in case of a default.
People usually borrow up to £1000 via car title loans. The typical loan term of a title loan ranges between 15 to 30 days, which may change depending on the amount of money borrowed.
Usually, car title loans allow borrowers to repay the loan as a lump sum, as opposed to repaying through monthly instalments. However, borrowers have the liberty to choose from a range of repayment plans – monthly, multi-year, etc.
In case a borrower defaults, the lending company will be entitled to immediate repossession of the borrower’s vehicle. Some loan companies may allow the borrower to pay the interest monthly until the loan is repaid in full. By law, the lender must send you a notice on missing a payment first. This will give you 14 days to respond.
How much can you get for a title loan/logbook loan?
You can borrow up to half of what your car is worth. Typically, lenders would lend around 25%, ranging between £500 and £50,000. While taking out a logbook loan, the lender will require your vehicle’s registration documents, as well as the logbook.
Is it a good idea to get a title loan?
While the plus side is that you can get small loans with more favourable repayment plans, there are several downsides associated with a title loan, some of which we’ve outlined for you:
- Title loans/logbook loans have outrageous interest rates.
- You are risking the possession of your vehicle if you fail to repay the loan on agreed terms.
- You can qualify for this loan only if you’re the legal owner of your vehicle and there is no outstanding loan associated with it.
- Based on your agreement with the lender you may lose some consumer rights.
If you wish to get a title loan, you should keep some things in mind:
- APR on these loans can go as high as 300%, so arrange a plan to repay this loan as fast as possible.
- Some lenders may levy an early repayment fee, so go through the paperwork thoroughly.
- Some lenders may insist on a weekly or fortnightly repayment plan. However, if they don’t accept direct debit, you may find it tough to juggle all the repayments and bills.
- You are entitled to a ‘statement of account’ if you can’t keep track of what you’ve paid and how much you owe to your lender.
- If the ongoing loan on your vehicle is about to come to an end, some lenders might approve your loan. They will, however, require the existing lender’s approval.
People may find the option of logbook loans enticing as it’s easy to borrow a loan this way. And also, people don’t have to worry about their credit score. However, there are many things to consider before taking out a logbook loan, such as high APRs and interest rates. Therefore, we urge you to make an informed decision and look for more feasible options before resorting to this one.