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Risks Involved In Auto Title Loan

Auto title loan is indeed a great relief to many consumers, especially when the need for cash happens in extreme necessity. This credit facility is very easy to obtain – the reason why it is the ultimate recourse when there occurs an urgent unforeseeable need for money. This kind of loan is very common now and many people heralded its entry into the lending system.

Lenders may differ in some requirements but common to all are the following:

*You must own the car and it is free from any lien or encumbrance, meaning you can not owe any other lender for the same unit of vehicle.

*You must have suitable amount of income for repayment of the loan.

*You have unexpired driver’s license.

Obtaining this type of credit facility is really easy and simple. And people begin to understand the deeper meaning of having equity in automobiles. For bigger amount of loan, the financial institution sometimes require for the car’s insurance coverage.

This loan is simple but they do not come free of risks – both for the borrower and the lender.

If you are a borrower, your risk starts when you default in your payment. The payment scheme of most auto title loan is monthly – depending on the deal – but the most common is monthly principal and interest amortizations. If you cannot pay, then the lender will have to repossess your car. In this case, you will be losing a lot of money. Lender only granted you 50% of the value of your car. So if it is worth $5000, you only borrowed $2,500. The lesson here, borrow only an amount that you can afford to repay.

For the lender, the risk is if the borrower could no longer be located, so with the vehicle. There are instances when upon default of payment, borrowers move to other places – keep themselves beyond communication. Even if you, the lender is lucky to repossess the car, you are still facing the problem of disposing the vehicle to monetize it. As lender, cash is what is paramount. Then another risk is when the car has been heavily damaged and even if repossessed, the value has gone down below the loan amount.

Obviously neither the borrower nor the lender would want this to happen. There are times that with negotiations, modifications in the repayment method can be arranged for the benefit of both parties.

Auto title loans are good source of emergency funds, but you should be sure you can adequately meet payments.

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