Pledging securities, or securities lending, as they are also known, is a practice that borrowers sometimes employ to get quick cash. These are similar to a personal loan, but you use your car as collateral. Although these loans are designed to help in a pinch, they are best avoided for several reasons.
Securities Lending Explained
A title loan is where you pledge the title to your vehicle as collateral for a short-term loan. These loans are usually around 30 days, but some lenders may allow longer. Plus, they come with high interest rates.
They are often attractive to people who own a car but need cash quickly. You can usually get one in about an hour or less, depending on your situation, and you can still drive your car. The lender only holds the title.
Here’s the catch, though – if you take out a title loan on your car and don’t pay it back, you lose your car. Pledging title is a huge risk for this reason.
To obtain a title loan, you must have equity in your vehicle and generally must own it freely and clearly. Lenders typically only provide loans for 25% to 50% of the vehicle’s value, so they can recoup their investment and make a profit by selling vehicles whose loans have not been paid. Some may even install GPS monitors and make copies of your keys to help with the repossession process if you don’t pay.
Can I pledge my title?
Whether or not you can pawn your car title depends on a few factors. As with most loans, eligibility requirements vary from lender to lender and to your personal circumstances. Generally, you can follow these guidelines if you plan to pledge your vehicle title for quick cash.
Ask yourself these questions:
- Do you own your car? – If the answer is yes, you may qualify for a title loan. However, if you still owe money on a car loan, you probably don’t qualify.
- Is there equity in your vehicle? – If you own your car, its total value is equity. If you don’t, you have equity when your vehicle is worth more than you owe on the loan.
- Can I reasonably afford to repay this? – Remember that if you bring a large amount of change, you must pay it off quickly or risk losing your vehicle.
- How much more do I have to pay back than I borrowed? – Like personal loans, interest rates on title loans can be very high – often up to 200% or more. Depending on the size of your loan, you may end up paying hundreds or even thousands more than you borrowed.
- Is there a better way to get more money? – If you’re in a hurry, but the need isn’t urgent, you may be able to find other, less expensive and less risky ways to raise money.
If you answered NO to any of the first three questions, pledging title is probably not for you.
Need more money without pledging securities?
If you have a loan on your car and need cash fast, cash-in refinancing might be right for you. This allows you to take the equity in your vehicle and use it in other ways. To qualify, you must have equity in your vehicle and meet all of the lender’s refinance requirements.
Here’s how it works: Imagine you only owe $4,000 on your loan, but your car is worth $6,000. If you qualify for a cash refinance, you get a new loan for your vehicle for $6,000 and get $2,000 in cash. You can use the money as you see fit and pay off the loan by the end of your new term.
Another option to consider
If you don’t own your car and need a break from spending, consider refinancing instead. Refinancing replaces the current loan on your vehicle with another, hopefully with a lower interest rate.
Most borrowers refinance to save money each month on their car payments. You can do this by qualifying for a lower interest rate or a longer loan term. Both will save you money each month, but only qualifying at a lower rate will save you money each month. If you just extend your term but don’t lower your interest rate, you end up paying more in the long run.
If you think refinancing might be the answer you’ve been looking for, you have options. Auto Express Credit wants to help you get the refinance deal you’re looking for by connecting you with the right resources. Start your refinancing journey today!