Maximizing Your Vehicle's Value
For many people, a car means freedom and flexibility to move around. It is also an asset to others as it can be used to secure a car title loan. As economic condition woes worsen, loan contracts can become unfavorable and repayments difficult.
The process of “refinancing a car title loan” allows you to opt for better loan contracts that can ease your repayment. This guide provides essential details for refinancing a car title loan.
What is a Car Title Loan?
A car title loan, also known as an auto title loan is a type of secured loan financing where car owners use their vehicle as collateral for another loan. To be eligible for a car title loan, car owners must have full ownership of their vehicle. If the borrowers fail to repay the loan, the lender takes ownership of the car and/or sells it off to recover their principal amount.
This short-term loan is a type of subprime lending that targets borrowers or car owners with a lower income or poor credit score. Car title loans carry high interest rates because of their high risk of default. The interest rate can be as high as 25-30% per month which is almost an annual percentage rate (APR) of 250-300%, according to Pew Charitable Trusts.
Benefits of Refinancing a Car Title Loan
Refinancing a car title loan involves replacing or reviewing your existing car title loan agreement to make favorable changes to the agreed monthly payment schedule, interest rate or any other terms outlined in the loan contract.
The most common cause of car title loan refinancing is because of the ever-changing market competition and economic cycle. There are many benefits associated with refinancing a car title loan:
- Favorable refinance rates: Refinancing a car title loan can give you a lower interest rate than before, allowing you to save more money in the long run. If your credit score has improved over the past few months or you found a better loan offering, refinancing can help lower your initial interest rates.
- Extended payment period: If you are experiencing a tough financial situation, refinancing your car title loan can provide additional time to pay off your loan. All you need is to reach out to your lender and opt for a loan extension. However, if your lender refuses, you can reach out to companies offering title loan buyouts and set up a better loan payment contract.
- Consolidate your debt: If you have several outstanding loans to settle, car title loan refinancing can help you take out a single manageable loan to offset your other existing loans. Consolidating your debt can help reduce your total monthly payment.
- Prevent car repossession: Many car owners are at risk of facing the possibility of repossession due to unfavorable car title loan contracts. Refinancing your car title loan can help provide a better way to settle your loans and eventually prevent the total loss of your vehicle.
What are the Typical Requirements for Refinancing Your Car Title Loan?
When it comes to refinancing a car title loan, only some vehicle loans are eligible to be refinanced as certain requirements must be met. To be eligible, the following are the typical requirements you must meet:
Current Payment Status
It is essential to be up-to-date with your loan repayments if you want to be eligible for a car title loan refinancing. Defaulting sends a negative message to lenders and will impact your loan refinancing application.
Car Valuation
Your car's worth needs to be more than your outstanding loan amount to be eligible for a car title loan refinancing. This is essential as your car will serve as collateral in case you default.
Time and Amount Left on Your Existing Loan
Most lenders want you to pay off at least half of your existing loan to backtrack your payment history. In addition, they also need to know how much is left as refinancing smaller loans may yield no profit. Although there is no minimum loan amount, Bankrate projects that lenders expect you to have at least $3,000 to $7,500 left on your loan to make a considerable profit.
Vehicle Requirement
Your vehicle, that is the collateral, needs to meet certain qualifications set by the lender. These qualifications include the mileage model year and car type or brand. Lenders are less likely to accept cars with high mileage or discontinued vehicles like Suzuki.
Loan-to-Value Ratio
The Loan-to-value ratio (LTV) is a measurement often used by lenders to compare your vehicle's value to your loan owed. Usually, it is calculated by dividing your loan with your vehicle’s actual cash value (ACV) and the result is expressed in percentage. LTV is a simple procedure that calculates the lender's risk and having a 125% or less puts you in a better position of getting a better interest rate.
Can You Refinance a Car Title Loan for Other Automobiles?
Car title loans can be refinanced for other kinds of automobiles, including motorcycles. Applying follows the same procedure; as long as your automobile has a title and meets the requirements, you can get refinanced.
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