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Car Title Loan Vs. Car Title Line of Credit

Did you know that you could use your car as collateral for a loan?  If you own your car outright, you can get a title loan for up to 70 percent of the car’s value.  Borrowers who may need a more flexible loan option can ask for a car title line of credit.  What is the difference between a title loan and a car title line of credit?

What is a Car Title Loan?

A car title loan is a loan that is secured using the title to your car.  While most lenders prefer that you own your car outright, it may be possible to get a reduced loan amount if you have sufficient equity built up.

If you have bad credit or no credit history, it may be worth looking into a car title loan because you can get the cash that you need fast.  Once you have repaid the loan, your account is closed and no lien exists on your title.

What is a Car Title Line of Credit?

A car title line of credit is a revolving account that you can use whenever you need money.  As you make a payment each month, that money goes back into your available balance.  Interest is generally only charged on the outstanding balance each month.

As with a car title loan, your line of credit is secured with the title to your car.  The amount that you can borrow is determined by the value of your car.  As with a car title loan, you should own your car outright or have sufficient equity in the car.

When is a Car Title Loan Right for You?

Car title loans are perfect for when you need cash in a pinch.  For example, if you need to come up with a security deposit for an apartment or to pay for your college education, going with a loan helps because you get your money, repay the loan as quickly as possible and close the account when you are done.

When is a Car Title Line of Credit Right for You?

Business owners can take advantage of a car title line of credit to finance their business operations.  Students who may not have time to work during the school year can tap their line of credit to help them pay daily living expenses.  In general, anyone who needs long-term funding should think about using a line of credit as opposed to a loan.

Beware of Interest and Fees

Both a car title loan and a car title line of credit will require you to pay interest on top of the principal balance.  If you are late with a payment or miss a payment entirely, you could be forced to pay as hundreds of dollars in late fees and higher interest charges.  Therefore, you should make sure that you can pay the loan back within a reasonable amount of time to avoid these charges.

Using your car as collateral for a loan or line of credit can be an easy way to get cash when other lenders won’t work with you.  If you are going to opt for such a loan or line of credit, make sure that you own your car outright and can repay the loan on time.  If not, you could risk losing your car and damaging your credit.