Auto Title Loans Fit With Good Debt Or Bad Debt?
Would you make use of an auto title loan to pay off good or bad debt? What is debt? Debt is money that you’re obligated to pay back. When you borrow money from a third party, there is some contract that is involved and also a fee for using their money. This fee is often known as interest payments towards the remaining balance. The interest will continue to be applied to outstanding balances until the debt is paid in full.
In the contract, there will be a payment schedule set up to define the amount which will be paid at the end of each period. For long-term debt expect small payments over a long period of time. The interest for this debt is normally lower as compared to short-term debt. With small payments over a long period of time, there will be a lot of interest for the lender. Short-term debt tends to have higher interest.
Good debt is when a person makes use of third-party money for something which continues to give personal or financial benefits beyond the terms in the contract. Vehicles or home are examples of good debt. These items continue to have value even after the years it took to pay off the lender. Bad debt is when money is borrowed and there are no long-term benefits from it. The item depreciates over time so much that there is no value or the item no longer exists while you continue to make payments on the loan.
Auto title loans tend to be an end result for many borrowers who need quick money but have no other ways to obtain financial help. Auto title loans are secured loans and to obtain one, a borrower will need to own the pink slip to their vehicle. Many people choose the cash advance or payday loan route, but these funds are limited to smaller amounts. No pink slip? These people are now looking to get multiple payday loans and leaning towards aggressive lender who does not follow the best practices for their service. Financial crisis is not a proactive way to run a budget. Take care of the good debt, and do what you can to get rid of the bad debt and prevent it from accumulating.
Title Loans – How to Use Them Responsibly
Title loans are given by lenders who make use of your car title, which is also known as a pink slip, which is collateral for the loan. These types of loans are created to provide quick cash for emergencies. When used carelessly, they can damage a person’s credit. When used responsibly, a pink slip loan or title loan can help rebuild your credit. Here are some things to keep in mind when taking a title loan:
Understand the Terms
Before you get into an agreement for a title loan, ensure you have a complete knowledge about the terms. This will help you from having to pay more than the original debt and to avoid losing your pink slip to the lender.
Consider All Your Options
If you have a steady income, from government assistance, a job or other means, you must consider your financing options such as, credit card cash advances, traditional loans, title loans, unsecured subprime loans and payday loans. When evaluating each type of loan, try to get the one with the lowest interest rate.
Most times a title loan is the best option for people with bad credit or no credit, because it’s a secured loan. Even though interest rates are still higher than traditional loans, but are much lower than unsecured loans.
Have a Plan for Repayment
Some lenders of title loans do not require proof of employment or income when approving your loan. But, it’s advisable that you’re well prepared to pay off the debt and are equipped with a proper repayment plan before you sign any documents.
Repay On Time
It is good to make your payments early to avoid a late payment penalty. It will also be better if you can pay more than the minimum payment every month. Ideally, choose a company that does not charge a repayment penalty, because you can save on interest charges by paying off the debt before it’s due.
The quicker a loan is paid off, the less interest, the borrower will end up paying. Some agreements will allow for interest-only monthly payments, but it’s ideal to make payments towards the principal every month to avoid a large payment at the end of the term or face the possibility of losing your car title. This type of loans can pull you into a debt trap.
If you are the type of person, who has a hard time remembering when your payments are due or have issues paying bills on time, you should choose to pay with direct debit or post-paid checks from your bank account. If you default on payments, you also face the possibility of losing the pink slip, this is when the lender initiates the process of selling or repossessing the vehicle to recover the debt.
Finding a Suitable Lender
Avoid lenders with a greedy lending practice that is designed to get you deeper in debt. Search for a reputable lender that offers no prepayment penalty and flexible term options. Also, ensure that they guarantee complete confidentiality and will protect your personal information to prevent identity theft.
If you know how to use title loans and decide that it’s really the best option for you, don’t hesitate any longer. All you need to apply for is a pink slip and proof that your vehicle is paid off or nearly paid off. Most lenders will allow you to apply for a title loan through a secure online application and let you know within minutes if you have been approved.