Car title loans have become a popular method of borrowing over the past few years as traditional lending standards have tightened. A car title loan is a secured loan where a vehicle is used as collateral. Title loans have been hailed as a solution for many families in need of emergency cash and they have been criticized just as well for preying on certain sectors of the population. There are both positive and negative points about car title loans. Here is a look at both.

The Positives

A car title loan is relatively easy to obtain for a borrower. To qualify, a borrower must own a vehicle and possess the title. In most cases, lenders prefer that the vehicle is paid off although they will lend to individuals with a balance remaining. Typically, the vehicle must be 10 years old or newer. If an individual meets these conditions, he or she can qualify to take out a car title loan.

The process is very quick. Applicants must submit a few forms of documentation and then the lender begins to process the loan. Embassy Loans, a leading consumer finance company in Florida, verifies a borrower’s identity and residency and then appraises the vehicle. The final loan agreement is drafted and a borrower can have his or her money within a few days. Many lenders do not check a borrower’s credit history since the loan is secured by a vehicle. This is another bonus for those who have poor credit histories.

The Negatives

The biggest negative, of course, is losing your vehicle. If a borrower fails to repay the loan, the lender has the legal right to take possession of the vehicle. Lenders do not want to repossess a vehicle. It is too time consuming and costly. In fact, less than 10 percent of all car title loans end up in repossession.

Should the car or truck be repossessed, the borrower will also have to deal with the resulting effects on a credit report. An individual’s credit score will drop as a result of the missed payments and the repossession. The legal action that results in repossession will also remain part of a person’s credit history for a period of seven year. It becomes increasingly difficult to borrow with a repossession on a credit report.

For the right person, a car title loan can make a big difference during a tough financial time. Like any loan, if repayment becomes a problem, there are consequences.