A title loan is a type of secured loan that uses a borrower’s vehicle as collateral. If your car has a salvage title, you may be wondering what that entails if you decide you want to apply for a title loan. A salvage title loan is possible, and the process is the same as a standard title loan.
Getting a title loan is a significant financial decision regardless of what kind of car you are using. So, it is crucial that you understand precisely what you are getting into. Continue reading for a complete explanation of salvage title loans.
What Exactly Is a Salvage Title?
A salvage title refers to the title of a car. When a vehicle is in an accident and is considered totaled (a total loss from a car insurance company), it will receive a salvaged title. If the car owner tries to sell it or use it for a title loan, the potential buyer or lender will automatically know that the vehicle was in rough shape at one point.
The Two Types of Cars That Can Be Considered a Salvage Title?
Most of the time, those who have their car totaled will usually junk their vehicle, especially if they have full insurance coverage. However, not everyone may want to or be able to do that. If you are someone who wants to repair their salvaged car, it is definitely possible! And so, you could have a vehicle with a salvage title that is road safe. To summarize, there can be two different kinds of salvage title cars:
- A salvage title vehicle that is entirely unrepairable and is junked.
- A salvage title car is rebuilt after being totaled and is safe to drive.
Detailed Explanation of How Title Loans Work?
You may wonder how these loans work if you haven’t taken out a title loan or secured loan. Here are some of the basics:
What Is a Title Loan?
A title loan also called a car title loan or vehicle title loan, is a secured loan type that uses a vehicle as collateral. This means to take out a title loan; you need to have a car and own it outright. Although, in some cases, getting a title loan with a financed vehicle may be possible depending on the lender you decide to work with.
What Do Title Loan Lenders Look at for Loan Approval?
To understand the basics of vehicle title loans, it is essential to know what these lenders will pay attention to with approval. Here is what they look into for these types of loans:
- The Value of the Vehicle — The value of the vehicle is a huge component of the title loan process. Lenders will look at the car’s make, model, mileage, and condition to determine value.
- Your Income — Your income is another significant factor in determining title loan approval. And so, when trying to increase your chances of approval, make sure you add all of your income sources!
- Your Ability To Repay the Loan — The last thing lenders will look at is your ability to repay the loan. This factor will encompass your income, the amount of debt, and the expenses you have each month. By looking at this variable, lenders can determine the loan amount they are comfortable giving out.
You may have noticed that credit history is not a part of the approval process, and that is because title loans are available to bad credit borrowers. So, although a lender may check your credit; your vehicle’s value, income, and ability to pay the loan will be the largest factors for approval. A salvage car title loan will work in the same way.
Do I Get To Drive My Car With a Salvage Title Loan?
Yes! You can continue driving your vehicle as you repay your title loan. Remember that you may have to add more coverage to your insurance policy, as your lender will need to protect the vehicle until the loan is paid back in full. However, even though you can drive your car, you will have to let your lender know where your car will primarily be stored.
What Documents Will I Need for a Salvage Vehicle Title Loan?
You’ll need to have some documentation when applying for a salvage car title loan or standard title loan. Here is what most lenders will ask for:
- The car’s title (most will ask for a clear title).
- A valid driver’s license or another form of a government-issued ID.
- Have the vehicle identification number (VIN).
- Photos of the vehicle or an in-person inspection.
- Proof of income (paystubs, bank statements, etc.).
- Proof of residency (valid mail, a driver’s license, etc.).
- Car insurance information.
- Professional references (sometimes).
How Much Can I Borrow From a Car Title Loan?
Title loan funds can range from a few hundred dollars to thousands depending on the lender and the state that you live in. The most significant factor determining how much you will get for a title loan is your vehicle’s value and income. With a rebuilt car, you may only get a few hundred dollars worth of funding—which may or may not be the amount you need.
The Best Ways of Improving My Chances for Approval With a Salvage Title Loan
Because title loans are secured with a vehicle, the condition and value of the car are a massive factor for approval. And although your salvage car may be road-safe condition, it may be difficult for the lender to resell the vehicle if the loan is not repaid. And so, it may be a little more challenging to find a title loan lender to work with.
The good news is that there are some things you can do to improve your chances for title loan approval with a salvage vehicle title:
Increase Your Income
If you are having trouble qualifying for a title loan because of your income, it will be helpful to try and increase it. Whether that means a part-time job or a side gig you can do from home. Even a few hundred dollars a month can be helpful when applying for a loan.
Show Your Car in the Best Condition
When applying with a rebuilt vehicle, it is essential to make sure you show your car in the best light possible. Things like fixing minor body damage and cleaning the inside can help get you the most funding from your loan.
Shop Around With Different Lenders
Every title loan lender will be different, and when applying with a salvage title, it will be helpful to look around for options. For example, you may find more flexibility and fewer restrictions with online lenders than you have locally. Regardless of loan type, looking at different options before settling is always a good idea.
Improve Your Credit Score
Although credit history is not a huge factor in determining title loan approval, improving it can help you get a more considerable loan amount. Additionally, a better credit score can mean avoiding bad credit loan options like car title loans in the first place—which come with higher interest rates than good credit loans. Improving your credit score can be as simple as paying your bills on time or as complicated as seeking credit counseling.
Things To Consider With a Salvage Title Loan
Before you decide to take out a title loan, it is essential to know some of the cons of these types of loans. Here are some drawbacks that you should consider before taking out a title loan:
The Interest Rates for Car Title Loans Are High
The interest rates for title loans are incredibly high. In fact, the average APR for one of these loans can range anywhere from 100% to 300% of the loan! These high-interest rates reflect the amount of risk the lender is taking, but as a borrower, you will be paying a lot of money for funds.
These Loans Can Come With a Lot of Fees
Missing even one payment on a car title loan can lead to catastrophic consequences on your loan payment. Because the interest rates for these loans are already so high, a late payment can mean a late fee, on top of the principal and interest rate!
Your Vehicle Is at Risk if You Cannot Pay Back the Loan
Because these loans are secured with your vehicle, if you miss your payments or break any part of the loan agreement (something even as simple as insurance requirements) can mean repossession of the car. If you cannot pay your loan back, you may find yourself struggling to get out of a title loan without losing your vehicle.
Car Title Loans Are Not a Long-term Financial Solution To Funding and Not the Best Short-term Option
Car title loans are meant to be a short-term financial solution and will not be the best long-term funding idea. Because these loans are costly, they can really eat at your income even if you get financial relief. Additionally, they are not the best short-term loan option either! Title loans can be risky, just like if you were to apply for a payday loan. The good news is that there are other loan options you can look to when trying to borrow money with bad credit:
- Bad Credit Personal Loans — Personal loans can be a great option when you need fast cash. Although some traditional lenders like banks may not offer these loans for bad credit, some lenders work with poor credit scores. Personal loans offer competitive interest rates and flexible loan terms.
- Secured Credit Cards — With bad credit, you may be able to borrow with a secured credit card. Although these loans may not mean funds right away, they can eventually lead to a credit line. If you don’t need funds immediately, these can be an excellent way to build credit and eventually borrow funds.
- Home Equity Loans — Home equity loans allow homeowners to borrow funds from their home’s value. If you need a large amount of money, a home equity loan can be the way to go despite bad credit!