Understanding the Basics of Utah Title Loans
A title loan is a secured type of loan with the borrower providing a title, usually of a car, as collateral. The lender puts a lien on the title and extends a loan to the borrower. The lender returns the title to the owner and removes the lien once the loan is paid in full. In the case of default, the car is repossessed and sold by the lender to cover the borrower’s unpaid loan.
A title loan in Utah is generally short-term in nature and carries a higher interest rate than traditional credit sources, such as banks. Read on to learn more.
Title Loan Process
In most cases, lenders do not put as much premium on a borrower’s credit history as the condition and value of the car that secures the loan. Despite the collateral, a comparatively high interest rate is charged on the loan because of the high incidence of default. Typical title loan borrowers are people who are currently experiencing financial problems.
Loan approval for as little as a $100 loan can be quick and easy. Traditional lenders will usually not extend a loan to a borrower with no credit history, as this seems risky and not profitable. Other than the collateral, lenders also verify the borrower’s employment or source of income.
History of Title Loans
The first title loans were granted during the early part of the 1990’s. The introduction of the loan created a growing market for people with poor credit rating, and it was seen as the sibling of unsecured loans, such as payday loans. Because of the high interest rates, there is a big chance that the borrower may default on the payments and risk losing the collateral.
The Loan Amount
The amount a borrower can get depends on the value of the collateral, which is usually 30% to 50% of the auction value. This provides some room for the lenders to profit in case they need to sell it due to payment default by the borrower.
While a title loan can provide quick cash, a decision to obtain one should be considered carefully. After all, it comes with the risk of losing your collateral. Before borrowing, make sure you will have a stable source of income or funds to repay the loan on time.