November 7, 2019
Understanding the Importance of Title Loans
What is the Difference Between Title Loans and Traditional Loans?
Title loans in Florence, Alabama are important as an option for individuals who need cash for any reason but can’t obtain loans the traditional way.
For many individuals, taking a loan from a bank, credit union or other financial institutions may not be an option. In order to obtain a loan the traditional way, the borrower must satisfy certain criteria in order to be approved for the loan. One of the main criteria is the borrower’s credit score.
Before being approved for traditional loans from a bank, credit union or other financial establishment, lenders use the borrower’s credit score to determine creditworthiness. Typically, the higher the applicant’s credit score, the more creditworthy they are and the higher the probability of repayment. In addition, lenders usually see a person with a high credit score as being a perfect match for lower interest rate loans.
For those seeking traditional loans, the level of income that they have is also factored into the equation. If an applicant has a higher level of income and a lower debt:income ratio, they are in a better position to repay the loan. Most importantly, those who extend traditional loans to consumers often look at the expenses that a borrower has and how it compares with their level of income. A smaller debt:loan ratio indicates that the borrower is better able to afford the loan.
All these factors are considered when it comes to traditional loans. Unfortunately, a person who has a low credit score, a low income level, and a high debt:income ratio may lack the creditworthiness to qualify for traditional loans. Because of the difficulty of obtaining traditional loans, many consumers choose to go with title loans instead.
Why are Title Loans Important?
A title loan in Florence, Alabama is valuable and important to certain consumers who struggle with being able to qualify for traditional loans. A title loan is when a lender offers a loan based on the borrower’s equity in their automobile. In some instances, the title of the car might not be considered as clear and there may be liens on the title, usually from a bank or lending institution that financed the automobile.
One of the benefits of obtaining a title loan are there are no credit checks with most title loans. This is very important for people who lack good credit and/or have questionable credit. Many people who choose title loans versus traditional loans have low credit scores that hinder their ability to get approved for loans. Title loans are important because the borrower’s approval is usually not based on creditworthiness.
With some title loans, there is often no proof of employment or income required. This is important because some borrowers do not have steady income and they may not be employed. Consider a person who may have lost their job and need a loan but can’t qualify based on income. This person could benefit from obtaining a title loan that usually does not require income. Just like any other loan, title loans require proof of residency as it is important to validate the borrower’s contact information, telephone number, address, and references.
One way that title loans are important is that they usually have contingency for the borrower’s unexpected inability to repay the full loan by the due dates. In these cases, the loan can often be rolled over to a new loan. The ability to roll loans over is important because it protects the borrower against negative repercussions that arise when a rollover is not an option. This gives borrowers a cushion to work with and wiggle room in case anything happens that prevents them from being able to make their payment.
One of the best benefits of getting a title loan instead of a traditional loan is that the borrower gets to keep their vehicle while they are repaying the loan. This is especially important because the person who is taking out a title loan usually depends on the vehicle to be able to get back and forth to work. Being able to continue working is important because it places the borrower in a better position to keep money coming in and to be able to repay the loan. Title loans are important for those who are seeking a way to get cash quickly and to be able to repay the short-term loan quickly.
Another reason that title loans are important is that successfully repaying the short-term loan may help the borrower to establish and/or improve their creditworthiness. Payment histories and transactions are reported to credit agencies like Experian, Equifax, and TransUnion. When borrowers repay their title loans, good and favorable reports are sent to the credit agencies. Receiving good credit reporting from title loan companies helps borrowers raise their credit score, improve their creditworthiness, and leaves a positive rating for any future loans. A person who had a low credit score and who lacked creditworthiness can benefit from improving their credit score, making it easier to obtain and qualify for future traditional loans.
Why are Title Loans Near Me Growing in Popularity?
There are over 8,000 title loan establishments that operate in 25 states across the U.S. Currently, over two million people use title loans as short-term solutions when they need cash quickly and lack the resources to obtain a loan from traditional banks, credit unions, and financial establishments.
Most title loans in Florence, Alabama do not have hard credit checks and they are not based on the applicant’s credit score and creditworthiness. Title loans may also be growing in popularity because they offer short-term solutions with rollover options for those who are not able to pay their loan as planned and may need more time.
Finally, title loans are growing in popularity because they create a way to help borrowers with credit issues rebuild or fix credit issues and improve their creditworthiness. Statistics show that half of title loan users use the funds to pay regular bills like rent, mortgage, groceries, transportation, etc. This is the main reason that title loans are important for consumers who are unable to obtain traditional loans.