For those wondering how to finance a vehicle on the quick, one option is an auto pawn loan. Also called an auto title loan, a potential car buyer simply uses the title of a vehicle they already own as collateral to finance a new purchase. The loan requirements for an auto pawn loan are much different from conventional, unsecured auto loans that dealerships and third party lenders generally offer. Here’s how the auto pawn loan usually works.
In order to put up your existing car or truck as collateral, you will need the official paper title for that vehicle, and it will need to be in your name. If you have lost the title, you can get a replacement for a nominal fee at any state-certified vehicle registration center.
In order to use your title to get a loan, that title generally needs to be clear of liens by outside parties. For instance, if you still owe a dealership or third party lender for some of the financing of the vehicle, they will have a lien on the title. This may bar you from using that title for an auto pawn loan. Titles for salvaged vehicles may not be eligible.
Those who are giving out loans for titles generally want to see the vehicle that they are taking as collateral. Find a local center and take your vehicle there to negotiate the terms of your loan. Though some auto pawn loan lenders may not require this, it often helps customers to be aware of the deals that they are signing.
You may be able to find an unconventional loan package, where collateral is only an accessory to a primarily unsecured loan based on a great credit rating, proof of income and other intangible assets that the borrower can provide. Using these guidelines, you may be able to come up with a good agreement with a local lender, where your auto title is only part of what you offer to lower the risk assessment.
Looking at the interest rates on an auto pawn loan or similar loan agreements is a great way to negotiate a package that you will be happy with in the long term.
It’s always in the buyer’s best interest to be critical of any kind of car loan or vehicle financing. However this is especially relevant in the case of auto pawn loans. Companies that hand out auto pawn loans are like other quick cash dispensaries. They can often confuse customers and leave them with a debt spiral that they will struggle with for years. The main thing to look at is the payment terms of the loan. Many auto pawn loans include short terms for repayment, such as two weeks or one month.
Consequently, if the interest rates changes after that time period, buyers are pegged with snowballing debts, accompanied with high interest rates. Federal and state governments are looking into limiting interest rates on auto pawn loans, but it’s still the responsibility of the consumer to be vigilant and avoid signing anything they cannot afford in the long term.
Auto pawn loans are quick—there’s no waiting around for approval. Because your existing vehicle functions as collateral, getting these loans involves less paperwork, time and effort than other types of car loans, including unsecured car loans where your credit is your only collateral, and lenders must pursue due diligence to find out what you qualify for.
With most auto pawn loans, a borrower can keep the vehicle and just turn over the title to the lender. This is in contrast to any other kind of pawning, where those who pawn objects usually have to give them up until they can buy them back.
The general setup of an auto pawn loan includes rollovers. It is absolutely critical for the borrower to understand how these rollovers work. In simple terms, the auto pawn loan often has a very short period for repayment, often two weeks or one month. After this point, the unpaid amount will often “roll over,” resulting in much higher interest rates. What generally happens with these rollovers is a huge spike in interest. In other words, if the borrower can’t pay, that unpaid amount balloons into a much larger amount that the borrower still won’t be able to pay. State governments are now looking at ways to limit auto pawn loan rollovers and to advise consumers on the big dangers of going this route to finance a vehicle purchase.
The kinds of lenders that deal in auto pawn loans are often labeled as predatory. Similar to conventional pawn shops, the rate of interest and terms for getting back your vehicle can be confusing and expensive to those who get involved in this kind of loan agreement. That’s not to say that all auto pawn lenders are dishonest, but in general, these agencies may be much less established than the kinds of lenders that write unsecured auto loans for customers.
What you need to do to find an auto pawn loan with lower interest rates is take the credit information you’ve acquired, along with your title and go to various shops. Negotiating a different kind of auto pawn loan that truly gives you breathing room will along make way for competitive interest rates.