Expand Your Financing Options with Alternative Lending

For some, cash is hard to come by. It can feel like weeks until the next paycheck. Fortunately, auto title loans are a way to quickly generate much-needed cash, even if you have a bad credit score. Read on for a guide to the basics.


What is an Auto Title Loan?

An auto title loan is open to anyone who has a car. No credit or background checks are required. It’s a secured loan from a lender that is based on the collateral – a car – that you are putting up. It involves no risk for the lender, so they get high approval ratings. A bank won’t give you a loan if you have bad credit, but an auto title loan will help you get the cash you need.


Why Are These Types of Loans so Popular?

Alternative lending options have quickly become popular, especially among Millennials. Entrepreneurs in this age group are drawn to the appeal of a quick cash option that doesn’t require a lengthy approval process. Startups that offer alternative loans, like Lending Club and OnDeck, appeal directly to Millennial small-business owners. These lenders rely on software and data points that helps them gauge how reliable a business will be in paying back the loan.

But alternative loans aren’t just for small businesses – they are for anyone who lacks the personal capital and necessary credit score to obtain a traditional loan. An auto title loan in particular can be a much-needed source of cash when money is tight, a paycheck is late, and other moments of financial need.


What are the Advantages of an Auto Title Loan?

There are several advantages to an auto title loan to consider when thinking about whether or not to pursue one:

  • Based on the value of the borrower’s car: the higher the value, the bigger the loan
  • No application process or credit review necessary
  • Generates fast cash
  • The borrower is still able to still drive their car
  • Typically a short-term loan (30 days or less)
  • The borrower can extend repayment and get a new loan if necessary
  • Good option if no other options are available


What are the Disadvantages of an Auto Title Loan?

As with any type of loan, there are some disadvantages to an auto title loan to keep in mind:

  • Extremely high interest rates – frequently even higher than the rate for a credit card. The borrower can quickly accumulate debt if they are unable to repay and continue to prolong the length of the loan.
  • Requires the borrower to come up with cash for a complete repayment in a very short period of time
  • The borrower could potentially lose their car if they can’t come up with money for repayment
  • If the lender repossesses the car, the borrower can lose both income and a source of transportation. Repossession also negatively impacts credit and will show up on the borrower’s credit history for seven years.


What are Alternatives to an Auto Title Loan?

  • The reward of an auto title loan can outweigh the risks, especially if there are truly no other options. However, financial experts recommend that potential borrowers carefully consider other loan options before turning to an auto title loan:
    • Personal loans: these can be taken out from a credit union or bank for longer periods of time and often have better rates than an auto title loan.
    • Credit cards: these are a form of unsecured loans, meaning the money is given purely on the assumption that you will be able to pay it back plus interest.
    • Cutting costs or adding extra income: if possible, curbing expenses or temporarily adding an extra job can help during a rough spot.


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