Whether you find yourself in a bind, you need to make an investment, or you simply need some additional funds, a loan may be the solution. Once you have a steady source of income and a vehicle to use as collateral, a car title loan is particularly attractive. However, a lien may already exist on your vehicle, which raises questions about your chances of securing such a loan. The information below should help you to understand this grey area.
What is a Lien?
Simply put, a lien is the claim that an entity has over property.
An example of this is the purchase of a motor vehicle, which uses a bank for financing. Until the value of the loan and associated interest is paid, the bank retains ownership of the vehicle. The contractual agreement stipulates the expectations and requirements such as the fact that the borrower cannot sell the vehicle until the loan has been cleared. Of course, being the lien holder, the bank can repossess the vehicle should any of the set requirements such as payment amount and frequency not be met.
What is a Car Title Loan?
A car title loan is a high interest, short term loan, which allows you to use your vehicle as collateral. Typically, to borrow against your vehicle, you should completely own the vehicle and you should have paid off any other loans associated with the vehicle.
The repayment term for these loans usually allows for a maximum of up to 30 days, which means you need to come up with the entirety of the repayment quickly. Interest rates here are usually in the range of 30 percent. If you find yourself in need of this type of funding you need to do your research and find a service with good rates and terms. We recommend using a site that compares online title loan companies. With a directory like this, you should be able to settle on a reputable lender that provides funds in your state.
Documents required usually include the title, your identification, and insurance documentation. The approval process is quick once all requirements are met. These loans are aimed at consumers who need some quick cash. But they also want to skip things like credit score checks. Reason being, they have bad credit, or because they need a loan with a short processing period.
The risk, of course, is the fact that using your vehicle as collateral means that you stand to lose it should you have trouble repaying the loan. Not only can the lending agency legally repossess your vehicle, but they can also sell the vehicle and retain proceeds exceeding the value of the loan.
How Does a Car Title Loan Work with an Existing Lien?
Based on the information presented above, the possibility of getting a car title loan with an existing lien comes into question. The answer here is that it depends on the lending agency.
Many firms do not budge on the lien holder condition. This means if there is any form of a loan on your vehicle, or they have reason to believe you do not own it, your online application is likely to be denied.
Some firms, however, offer some wiggle room with this concept. They allow you to get a loan despite the existing lien, but there are usually conditions attached. These conditions are not always explicitly stated and so it is important that you take the necessary time to review the documentation and gain any necessary clarification before moving to sign any paperwork.
One common condition that is not always highlighted is the lien clearance portion of the loan. To understand this better, imagine that you have an auto loan from a bank with $1,200 remaining. This would mean that there is an existing lien on the vehicle. You then request a loan for $3,000 from a lending institution against the same vehicle. When the loan is approved, you may be under the impression that you are to receive $3,000, but you instead receive $1,800. The institution used $1,200 of your request to clear your existing loan. The result of this is your having to pay back a $3,000 loan when you only felt the value of $1,800, which may not have been enough to address your need for getting the loan.
The possibility exists to get a car title loan with an existing lien on your vehicle. You simply need to check with various lenders to find one that does. You also need to ensure you fully understand the associated terms prior to entering the agreement.