Like many other secured loans, pink slip loans in California can be a useful solution to short-term financial needs as long as they are used properly and with care. In today's economic climate, it's a fact of life that unforeseen expenses will arise for just about anyone. For California borrowers struggling through a financial hardship, pink slip loans are often a popular solution for a variety of short-term financial needs. It goes without saying that pink slip loans in California aren't always painted in the most flattering light. However what's not discussed as frequently is how pink slip loans can and do work for borrowers if used sensibly and in the way they were meant to be used.
So what is a pink slip loan, and why do people use them?
Pink slip loans are a type of secured, short-term loan where a borrower's vehicle is used as collateral, allowing him or her to take out an amount of cash based on the current market value of his or her car. Borrowers who take out a pink slip loan allow a lender to place a lien on their title and temporarily trade their free and clear paper title for cash. Once the loan is repaid the lien is removed, and the borrower's title is returned to its original owner. If a borrower defaults on his or her loan by missing too many payments, lenders may then repossess the vehicle to repay the remainder of the borrower's debt.
Many traditional lenders won't work with borrowers if they haven't built up a solid credit history, or if their scores fall below a certain number. Pink slip loans were created to help borrowers with poor credit who wouldn't otherwise have access to cash in the face of an emergency. One study conducted at Vanderbilt University states that, "If consumers use the loans for unexpected shocks, then title loans perform the important function of smoothing consumption for people who may not have access to traditional consumer lending institutions." In many cases, borrowers considering pink slip loans in California can't get a loan from a bank or a credit union due to poor or non-existent credit histories.
The amount pink slip lenders give borrowers is based on the vehicle's current bluebook value, and is typically less than the car's current value. That way, if the deal goes sour and they need to repossess the car to recoup their expenses, they don't lose money. However, borrowers can still typically secure thousands of dollars with a single title loan. In California, borrowers are usually able to secure pink slip loans without undergoing a credit check which, lenders say, is part of the reason interest rates are higher than those of traditional lenders. Technically pink slip lenders are taking a greater risk by giving money to borrowers with poor credit, because there is a higher risk of defaulting. Additionally, many lenders charge higher rates in exchange for the convenience of being able to get cash within just hours of applying, instead of having to wait days, or even weeks with some traditional lenders.
Borrowers aren't simply left in the dark about how title loans work or what their terms are - the risks of these types of loans must be made clear and up-front by lenders. Where borrowers tend to get into foggy territory is when they rely on auto title loans to finance their lives and cover their expenses for long periods of time. Auto title loans are meant to be a short-term solution to an immediate financial need - not a long-term fix to a continuing financial problem. California's Department of Business Oversight makes this very clear in stating, "Even if you don't have the protection of interest rate limits, the law requires lenders to deal with you fairly and honestly. This means they must fully inform you about the interest you will pay." It is ultimately up to the borrower to make the decision about whether he or she can realistically handle the payments and the interest rates when all is said and done.
Current California state laws do not have a cap for interest rates for loans of more than $2,500. However, California has one of the highest numbers of both borrowers and title loan brokers. As a result, lenders know that in order to stay competitive, it doesn't make much sense to charge impossibly high interest rates. Where California pink slip loans tend to differ from other types of loans is in that the principal and the interest are all due in the same payment. In this respect, it's important for borrowers to be sure what the full amount due will be, and that they will be able to pay it when the time comes. However, as previously noted, state laws require lenders to be upfront about both the interest and the terms borrowers are signing on for. Simply put, it is best to take out a title loan when you know you will have enough money coming in to repay the loan - as well as the interest - in full after the term is up.
Additionally, critics of California pink slip loans often point out what seem like astronomical annual interest rates. However, since pink slip loans are meant to be short-term solutions, APR isn't always a fair assessment of pink slip loan interest rates. Annual interest rates may be high, however pink slip loans in California are almost never taken out on an annual basis - usually the loan term is around 31 days. In these cases, interest rates are substantially lower than what is often pointed out by opponents of pink slip loans. However California law allows an "unlimited lifetime" if the loan exceeds $2,500. This means the loan can be rolled over into another term.
Though a borrower's vehicle is what is used as collateral, the reason many borrowers turn to pink slip loans in California is because they can get a loan of up to several thousand dollars without giving up any collateral besides their paper titles. Many borrowers need their vehicles to earn their living, which is why this is beneficial to both the lender and the borrower. The aforementioned study conducted at Vanderbilt University points out that vehicle repossession affects only a small portion of those who use pink slip loans. The low percentage of people who actually end up losing their vehicles contradicts the dire and often overblown consequences predicted by many critics, states Paige Marta Skiba in an interview with Vanderbilt News.
In other words, pink slip loans in California work in much the same way as mortgages, car loans, or any other type of secured loan. Too many missed payments can result in repossession of your car, just like too many missed payments on a mortgage can lead to repossession of your house. However, the difference is that while title lenders may charge higher interest rates than traditional lenders, they give borrowers the opportunity to roll their loans over if they are unable to pay the full amount at the time their loan repayment is due. The Department of Business Oversight recommends borrowers only take out as much as they can afford to repay once it comes time to repay the loan in full. Though the vehicle may be worth more, it is important that you are sure that you have the money coming in to be able to repay your loan in full.
Pink slip loans in California can be a great resource for people who encounter an emergency expense where they need money immediately, and know they will have the funds to pay off their loan by the end of the term. Every year, thousands of borrowers successfully use, navigate, and repay car title loans without incident. As long as borrowers keep their calculations and procrastination in check, title loans can be a safe and affordable solution for many short-term needs. The important thing - like with any other type of loan that involves collateral - is to be sure you can repay your loan once it's time to settle up.
By working with our lenders, you could end up saving up to 20% on your repayment, and eliminate the risk of being taken advantage of.
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