Truck Title Loans

What is a Truck Title Loan?

Truck Title Loans are a type of loan obtained by pawning a truck’s title. The loan is collateralized, and the lender grants you a short-term loan of up to $100,000 based on the amount of equity in your vehicle.

The interest rate for this type of loan fluctuates and is usually higher than other similar loans offered through traditional lenders such as banks. The reason for this higher interest rate stems from the additional risk involved with lending money secured by a motor vehicle as opposed to regular personal property such as jewelry or real estate. 

The fact that you have to take the title in your vehicle as collateral means a greater degree of risk than with other types of loans. For example, if you default on the loan, the lender can repossess the truck and collect outstanding loan payments from your insurance company.

Consequently, several specific terms make this type of loan more expensive than other types, such as:

• The interest rate would typically be higher because there is greater risk involved.
• The collateralized loan is secured by the truck rather than other personal property such as jewelry or real estate. Therefore this type of loan may require additional insurance coverage and more money upfront.
• Due to the fact that there is no real estate collateral to protect the lender, the lender would need to buy an insurance policy. The cost of this would be passed on to you as part of your loan terms.
• A down payment is typically required for you to qualify for a loan; this cannot be paid with part of the down payment for a motor vehicle.
• Occasionally, additional fees (such as closing costs, the appraisal fee, etc.) are added to the cost of the loan.

Although truck title Loans are more expensive than other types of loans, they are still available from banks and some national lenders. 

How does a truck title loan work?

When you enter into a loan agreement with a financial institution, you sign an agreement stating that if you make your monthly installment payments on time for the amount of time specified in the contract, at the end of that time, you’ll be able to keep the property. If you don’t make your monthly payments on time and according to the terms of your contract, then you may not be able to keep possession of the vehicle.

Most truck title loans are for a maximum term of 30 days and come with a 12-18% interest rate. The rate depends on the type of lender and the amount of your down payment. If you have good credit, you may qualify to get special loans with as little as a 3% interest rate. 

Because these types of transactions carry greater risk, lenders typically require that more money be put up upfront to qualify for the loan. It is usually done through an initial principal and interest payment amortization schedule (which means you pay the lender interest on borrowed funds). The amount of your down payment likely depends on:

• The cost of your vehicle (you are expected to cover depreciation costs).
• The amount of your income.
• The amount of your down payment.

The loan term or how long you will be paying back the loan (the longer you provide for full payment, the bigger your down payment has to be).

While some lenders may require a 40% down payment, if the lender is willing to accept it and your monthly payment is affordable, the initial monthly payments may still be higher than they would otherwise be. This can result in a higher total cost since more money would need to be paid back over time.

• How fast you get a truck title loan depends on:
• Lenders’ willingness to lend.
• How much money you can put up as collateral.
• How competitive your application is with other applicants at that point in time.

For example, if you have less than perfect credit and are applying for a loan with a high-interest rate, you may have to wait longer.

Once the title to your truck is registered in the lender’s name, they will create a lien on your truck. This means they have legal title to your vehicle until the loan is paid off. Consequently, you’re responsible for settling the outstanding balance with the lender if you default on your payment or something happens before completing the terms of your contract (such as an accident).

Risks of Truck Title Loans

Although truck title loans do carry greater risk for the lender, there are still risks involved for you, the borrower. These include:

If you can’t make your monthly payments on time or as agreed in your loan contract, your lender may repossess your truck.

You may also need insurance from a lien-holder to protect your loan. (This is usually referred to as gap insurance.)

The interest rate may still be too high for you to keep up with the payments if something happens and you lose your job or have other financial problems. Some lenders may even change the number of interest rates without warning should these factors change.

Make sure you read and sign your loan agreement carefully. Take your time, don’t let a lender rush you into a decision. Ensure all the terms are clearly defined in the contract, so you know what you’re getting into before entering this type of loan.

Pros of Truck Title Loans

There are benefits to borrowing against truck title loans if you choose a reputable lender and have good credit:

You can get money quickly with little hassle, whether for an emergency or something else.

You may be able to get a loan with a smaller down payment than down payments required by lenders for other types of loans.

It can be an affordable way to borrow money if you can afford the monthly payment and have no unexpected financial problems.

Cons of Truck Title Loans

Lenders rely on your ability to make monthly payments on time and as agreed in your loan contract. If you default or breach the contract in any way, a lender can repossess the truck, call in the loan and sell it for their benefit. This means you would owe the full amount of the outstanding balance that may have increased since entering your loan agreement due to additional interest charges.

If the value of your truck decreases, you would have to pay back the principal and interest at a higher rate than you originally agreed to.

Should you change your employment situation or lose your job and therefore be unable to make monthly payments, a lender could repossess your truck, take possession of it and sell off its parts as collateral. This means you would be responsible for paying back the outstanding loan balance even though you may no longer have title to the vehicle.

How to apply for Truck Title Loans

Before you apply for a truck title loan, make sure that the lender is reputable and will take the time to explain all the terms of your agreement in full before you sign on the dotted line. You can find a range of lenders in your area through online research. Of course, you’re not limited to just researching local lenders. You can easily apply to these lenders from anywhere if you have an internet connection.

The upside is that there’s no need to physically visit any of the lenders. However, you can only apply for a truck title loan through an internet-based lender that will facilitate the application with all the necessary information to complete it online.

If you decide that truck title loans are right for your situation, then research will help you determine which type of loan suits your needs and circumstances best.

Before you apply, make sure you confirm that the lender is interested in your loan application. Also, know that most lenders will require to see a copy of the title since they are the legal owners of your truck until the loan is repaid in full.

Requirements for Truck Title Loan

Before you initiate any contact with an online lender, make sure you’re prepared to provide all necessary personal information, including:

• Your driver’s license number.
• Your social security number.
• The year and type of vehicle, as well as its image.
• Your monthly income and employment situation (ensure you have your most recent pay stubs or a recent W-2).

Once approved, an online lender will require several documents to be uploaded before they can begin processing your loan. The documents include:

• The title of your truck.
• Proof of insurance for the vehicle, such as a rental agreement or your most recent insurance policy.
• A copy of your employment contract.
• Proof that you have sufficient assets to pay off the loan should anything happen to you during its duration (this could be something like a list of assets or bank account statements).

What to look for in a truck title loan

When you’re researching online lenders, be sure to read the terms of the contract carefully. Take special note of how much you need to pay before they begin processing the loan. You should also verify the following:

Loan amount: The total cost of borrowing money through a truck title loan.

The interest rate: This will vary between lenders, but you must compare rates as every lender has a rate schedule that can differ greatly. Some lenders only offer one interest rate, while others may offer multiple options to choose from.

Monthly payment: If you require money for an emergency, your lender will most likely have flexible payment plans available for you.

Advance fee: If you pay a fee upfront to the lender, they may reduce the monthly payment and interest rate to incentivize you.

Interest charges: If you pay more than the agreed amount each month, this will be reflected in the interest that you are charged here.

Your privacy should be your number one priority during the application process. Look at any lien-holders policies before signing on with a lender to ensure they don’t share any private information with third parties (such as telephone numbers or mailing addresses) or disclose it to anyone else (including law enforcement agencies).

As with any loan, make sure you have a plan for repaying your loan should anything happen.