If you are hoping to fix your credit score, establishing as much good credit as you can is the most beneficial thing you can do. The average Canadian has a credit score of 650, which, while not terrible, can make it difficult to get the best interest rates.
A car title loan might be able to help. In this article, we look at how. Let’s begin!
What Is a Car Title Loan?
Car title loans are secured loans. The recipient of a car title loan gives up the physical title of the car temporarily to draw equity from their vehicle. They can still use the vehicle while making payments, but the car is the collateral.
While many lenders offer car title loans, they are sometimes called by other names, such as:
- Auto title loans
- Motorcycle title loans
- Truck title loans
- Car equity loans
- Car collateral loans
- No credit check title loans
How Do Car Title Loans Work?
The process of getting a car title loan is usually pretty quick. Borrowers can go to a car title loan lender in person or apply online.
If applying in person, borrowers will usually need to bring:
- Their vehicle
- The vehicle’s title
- A government-issued ID
- Proof of income
If applying online, borrowers will typically need to fill out an application and submit it along with:
- A clear photo or scan of their vehicle title
- A clear photo or scan of their government-issued ID
- Proof of income
Once the lender has all of the necessary documents, they will assess the value of the borrower’s vehicle and give them a loan amount. The loan amount is usually a percentage of the vehicle’s value.
Borrowers will then sign a loan agreement, which will outline the loan’s terms and conditions. These usually include the loan’s interest rate, repayment schedule, and any fees.
After the loan agreement is signed, the borrower will get the cash they need and be able to keep their vehicle. The lender will place a lien on the vehicle’s title and hold on to the hard copy of the vehicle registration. When the loan is paid off, the lender will remove the lien from the title and return the registration paperwork to the borrower.
How Car Title Loans May Improve Your Credit Score
So, do title loans help your credit? They absolutely can if you’re handling the terms of the loan responsibly. Car title loans and credit improvements hinge on making on-time payments.
Furthermore, as the balance of the loan dips, your debt-to-income ratio will improve. The debt-to-income ratio takes all of the monthly debt payments you make and divides them by your gross monthly income. The lower this number is, the better off you’ll be in the eyes of creditors.
Car title loans will not directly affect your credit score since they are not reported to the credit bureaus. However, if you default on the loan and the lender repossesses your vehicle, this will be reported and can damage your score.
So, while they’re among the many effective ways to fix your credit, you do have to exercise caution in how you manage them. Be sure to get more info before proceeding.
Fix Your Credit Score With Car Title Loans
Do you need to fix your credit score? Your car is certainly a means to that end if you’re cognizant of the payment terms and commit to making on-time payments. Tap into that “car equity” today.
For more financial tips and information, check out some of our additional posts!