Auto title lending has become quite popular lately with the rise in consumers turning to lenders offering fast, convenient, and simple loans. With the economy calling for consumers to "reach out" in an effort to supplement their paychecks, take care of past-due bills, or deal with financial emergencies that aren't covered by some sort of savings account, auto tile loans have become more common than ever.
But if these types of loans have only recently (1990′s) become a widely traveled avenue for those looking to put themselves back in the "financial driver's seat", where were people turning to before to close the gap between financial freedom and budget bedlam. Those lenders who use to gain the business of harried borrowers have now become competition for the title lenders giving consumers more options but less room to breathe in the approval process.
U.S. banks such as Wells Fargo & Co. and U.S. Bancorp still offer conventional loans like they always have but they have also jumped in on the short-term, high-risk lending game in an effort to recoup revenue lost from debit-card and overdraft fees. Banks, along with auto title loan and payday lenders are being scrutinized for the use of these short-term loans that offer high interest rates but may not be held accountable to state laws that are subject to interest-rate caps. The Federal Deposit Insurance Corp. along with the Consumer Financial Protection Bureau have taken moves to investigate these bank loans that don't use the word "payday" but instead titles like Ready Advance and Direct Deposit Advance.
While auto title lenders base the amount of your loan on the value and equity of your car, short-term bank loans are based solely on the borrower's income and job history. Auto title lenders use the equity in the consumer's car or truck to make a decision on loan eligibility and amount which means no credit check is needed when a person applies for these types of loans. Most auto title lenders will not report to credit bureaus in the event the consumer is late on payments or doesn't pay back the loan at all. Banks, on the other hand, may choose to let credit agencies know that the consumer has defaulted on the loan as well as having the option to close the borrower's account should the loan not be paid back. This alone makes auto title loans attractive to people who have bad credit or little to no credit at all.
On the other hand, borrowers of auto title loans will not gain credit worthiness when they make good on their loan payments while payday loans from traditional lending institutions will allow consumers to "create a credit record that will enable them to graduate to more mainstream credit products, whether with us or with another reputable institution." says Jeffrey Lee, executive vice president of Regions Bank.
The big draw to auto title loans may be the big amount borrowers can actually take out against the equity of their vehicle. While the average payday loan amount anywhere from $250-$1000 based on state lending caps, auto title loans can put up to $5000 in the borrower's bank account because they are based on the value of the consumer's car or truck. Keep in mind the lender requires the title or "pink slip" to the vehicle before they hand over the cash and in the event that the borrower does not repay the loan? The lender can repossess the vehicle.