When you need cash and the only asset you have is the title to your car, you may be considering a title loan or a title pawn. In either case you should consider the principal amount of the loan, and the interest rate. This percentage over the length of the loan will determine how much you are actually paying back.
Personal loans are based on the idea of credit – how much of a risk is involved in lending you money? A title pawn, on the other hand, is based on collateral, or how much your car is actually worth. Both require you to surrender the title to your vehicle.
1. Loan amount
A title loan involves checking credit scores and history. Even if you receive a loan, credit history will determine the interest rate you’re charged. Interest rates tend to be much higher than with standard bank loans.
With a title pawn, you’re using your property as a guarantee against the lender’s possible loss, so you are only going to get the fair market amount which the lender feels he can get if he has to resell your car to recoup his loss.
In title loans, payments are scheduled so that each payment goes toward both a portion of the interest and a portion of the loan amount.
Interest on title pawns tends to be even higher. There are laws in each state regulating how much interest can be charged on a pawn loan, but they still tend to be very high, making it more difficult to pay off.
If you fail to keep up payments on a title loan, the lender can legally enter your property and repossess the car. It will then be sold at auction and the proceeds put toward the balance of your loan. If the amount for which it’s sold exceeds the amount you owe, the lender by law has to forward you the difference. If the loan is paid off, the title is returned.
If you fail to pay off a title pawn loan, you have already given the lender legal title to your car, and they can legally repossess and sell it to recover their losses. While laws vary from state to state, with a title pawn, even if you have paid off the full term and amount of the loan, ownership automatically transfers to the lender.
There is normally a 30-day grace period allowing you to surrender the car, after which the lender has the legal right to repossess and sell it, keeping all of the money. In most states, such as Georgia, they can also charge you for their costs in repossessing the car.