Title loans look like an appealing way to walk out of a financially challenging situation with cash in hand. Being the easiest and straightforward loan types, title loans are frequently withdrawn by people who are in need of cash and are sure that their next paycheck will be able to cover the loan amount. It is not uncommon to find yourself at crossroads regarding the effect of title loan on your credit ratings. You can read more here about credit ratings and title loans.
Title Loans explained:
Before jumping straight into a loaning situation, it is important to understand each and every aspect of a title loan. In simple words, in order to get a title loan, you give up one of your possessions such as a car to be collected as collateral by the lender. This collateral offers a kind of security for the lender and in case if you fail to pay the balance, you may lose the car.
Although some of the people consider title loans as a bad idea because of their high APRs, title loans can be a viable solution if you are sure that you will be able to pay the balance with your next paycheck.
The possibility of losing your possession is always prevalent. In order to avoid any such unfortunate situation, it is important to ensure that you pay the balance amounts when it is due. Preferably, the whole credit amount is paid back to the lender whenever paycheck is received or as soon as money is available.
Title loans and credit ratings:
Title loans have a very minor effect on your credit ratings. Although the common belief is that title loans do not affect the credit ratings, in reality, there is no black and white answer to financial regulations. The lenders of title loans do not check the credit ratings before approval of credit loans. This means that a person with little to no credit can get a title loan to compensate for emergency financial situations.
- There is no increment in your credit ratings if you pay the title loan balance on time.
- Missing the occasional payment will not have any negative impact in your credit ratings.
- Your credit ratings will only be affected in case of title repossession, which is a result of the repeated failure of making payments on time.
- Title repossession will not only result in loss of your title but also harm your credit ratings for years to come.
Title loans are secured loans:
Out of the two types of loans, title loans are secured loans. This means that unlike unsecured loans, which rely solely on your credit rating to determine your suitability for the loan, the title loans rely little on your credit rating. Title loans offer credit protection to the lender in form of collecting collateral which is usually a possession of the creditor. People with little to no credit can get title loans because of the absence of any bank organizations or individual lender which rely solely on your creditworthiness to approve the loan.