Secured personal loans and auto title loans are very similar. In fact, auto title loans are considered types of secured personal loans. But in reality, they are totally different! In fact, one can be a great option for some people. The other option is predatory.
Secured personal loans. Most people define personal loans as unsecured loans paid in installments. This definition is not completely correct because some companies offer secured personal loans. You put something as collateral, for example, your car, and you get the money. That way, the lender is sure that he will get his money back from you. These are also known as collateral loans.
Auto title loans. They are very similar to the aforementioned type. In fact, they are types of secured personal loans. But in reality, they are totally different. They require you to put your car in collateral to give you the money. The big difference is in the actual terms that are offered to you. The amount that you can expect to get is always below your car’s worth (about 40% of it). The APR is much higher, close to payday loans (about 300%). Auto title loans are predatory, and they have to be avoided.
To understand the difference better:
Let’s start with a quick overview of payday loans to explain this concept better.
Payday lenders try to manipulate people. Their main targets are those who have a low credit score, lack of information, young people, people looking for fast cash, etc. They try to convince those people that they are their only option to get money. No credit score, no problem. Fast cash, no problem. That is the way they promote their services. They typically offer up to $1,000 fast cash and actually lend it, even if your credit score is very low. It’s really easy to get these loans. But after that, you find that the APR is insane. It’s about 400%! To illustrate, this means that for every $100, you pay about $15 for 2 weeks period. If you don’t pay the amount on time, lenders reserve their rights to require that you pay only the amount’s interest. But this amount doesn’t lower the principal amount of the money. And the process repeats until you pay the whole amount. This is known as a debt cycle.
Auto title loans are very similar. The difference is that, apart from the fact that you have to pay a very high APR and the risk of getting into a debt cycle, there is also a risk of losing your car that you put as collateral. When you agree to do this, lenders will give you a slight discount, and the average APR of auto title loans is about 300%. Still a very bad deal!
The amount you can expect to get is lower than your car’s price! According to some stats, it varies, but it is about 40% of the car’s amount. Typically, you can expect between $100 to $10,000.
The typical profile of people who get auto title loans
Reasons to avoid auto title loans
As we said, they are very expensive. You risk getting into a debt cycle and also losing your car. But what if you don’t have any other options? Are you sure??? Do you know that the lending market is much more flexible these days, and there are so many ways to get a loan? Here is what your options are in 2019, based on your credit score.:
Are car title loans legitimate?
Auto title loans are illegal in some states. However, even if they are illegal in your state, some predatory lenders can try to get you through big peer-to-peer lending platforms. Please make sure you recognize them. You will read many tips on finding the right lender for you on our site.
Auto title loans are predatory. We highly recommend avoiding them because they are costly and risky. Also, if you shop around, you will find that there are always options for you, even if you have a bad credit score.
Personal loans typically offer from $1,000 to $50,000. You have the option to pick the best repayment installment plan, which is about 3-5 years. The APR is up to 36%. Now, can you see the difference between them and the previous option? It’s so obvious!
But why go secured, you ask?
When you secure your loan, lenders feel safer because they are sure that you can pay their money back on time. Therefore, they are ready to:
The typical profile of people who should get secured personal loans
Cases where it is NOT recommended to get a secured personal loans
We at ElitePersonalFinance highly recommend that you don’t use these loans:
Can I get a secured loan with really bad credit?
Actually, yes. We’ve recently posted so many articles on our site discussing the possibility of getting money with a bad credit score. If you go secured, then your options are even better. When you go secure, the main problem is if you can actually pay back the money.
What is the average APR that I can expect?
It varies, but to give you a basic overview of unsecured personal loans:
You can expect these values to be lower by a few points with secured loans.
Types of secured personal loans:
Do we recommend secured personal loans?
The quick answer to this question is Yes! But are you sure they are the best option for you? If you can’t get approved, this is because of your bad credit score. If you are approved but want to try to lower your APR, use them. But to find the best offers, shop around and compare them! We don’t want to say that secured personal loans are the best! They are only one recommended option that people should check while shopping around. But in the end, you pick your best offer.
ElitePersonalFinance did a lot of research to find options that people can use to avoid payday loans and get personal loans. Nevertheless, this is not always possible if you have really bad credit. But if you try to put collateral, it will be ridiculous to do it with an auto title loan lender. Getting a secured personal loan at reliable rates is much easier now.