Car title loans are often written about as “bad” and to be avoided. This may be true for some borrowers, and for others car title loans serve an important purpose. The key to making sure you are in the latter category is determining whether or not you make a good car title loan candidate. Not everyone does. Those who are not good car title loan candidates should find an alternative to a title loan.
This is important so it is worth repeating: Car Title loans are not a good choice for everyone. There are some criteria that help make sure a car title loan improves your financial situation. Getting a car title loan when you are not a good candidate is likely to cause a financial problem instead of solve one.
Candidate Requirements and Factors
To detemrine whether or not you are a candidate for a car title loan you should go through each of the factors and evaluate yourself against each.
Car Title Loan Candidate Factor 1 – Vehicle
The first factor to be a good candidate for a car title loan is your vehicle. You will need to own the vehicle with no liens. Additionally, the vehicle must have enough equity in it to support the loan amount. Generally, you can borrow up to 50% of a vehicle’s fair market value. Perform an honest assessment of the vehicle’s condition and look up the value in a guide like Kelley Blue Book.
Some lenders have year and mileage restrictions. This will make getting a title loan, especially a car title loan online, difficult if you have an older vehicle with high mileage. If the vehicle is a classic car with equity you will likely be able to get a classic car title loan. The vehicle value is the key aspect, you will find the value from Kelley Blue Book.
Car Title Loan Candidate Factor 2 – Short Term Financial Need
Car title loans are meant to solve short term financial problems. To be a good candidate you should have a short term need for funding. If you require a solution with a loan over several years, you should consider an alternative. However, if you can repay the title loan in less than 24 month (preferably less than 12), you may be a good title loan candidate.
The reason car title loans are short term solutions and not long term is the interest rate. Even a low interest rate title loan can be expensive when compared to other loans. When the interest rate is increased, and the term is lengthened, the total cost of the loan increases dramatically. See the true costs of title loans for several examples of what happens when you try to make a title loan a long term loan.
Car Title Loan Candidate Factor 3 – Ability to repay the Loan
Another important factor when determining whether or not a title loan makes sense is your ability to repay the loan. A good title loan candidate has the ability to repay the title loan, in full, on or before the due date. For monthly term loans this means making the monthly payments, at a minimum, on or before the due date each month.
If there is any question or doubt about your ability to repay the loan then you should consider an alternative.
Car Title Loan Candidate Factor 4 – The Loan Amount you can Afford solves your Problem
This factor is related to the previous and has to due with the loan amount you are able to afford. It is probably easier to explain with an example. Let’s say you need a $2,000 car title loan to pay for a car repair. Less than $2,000 will not solve your problem, so you get a quote for a $2,000 loan. You must be able to afford the payment(s) for a $2,000 title loan to be a good candidate.
Final Factor – You Meet the Car Title Loan Requirements
Finally, to be a car title loan candidate, you must meet the requirements. These may vary from lender to lender, but generally include the following:
- Lien free Title
- Valid Drivers License
- Proof of Insurance
- Proof of Income
- Vehicle Pictures (for Online Title Loans)
If you meet the requirements, and each factor, you may be a good candidate for a car title loan. Remember title loans are meant to be short term loans. Always borrow only what you need and repay the loan as soon as possible to save on interest charges.