If you are in need of a loan but don’t have the best credit or financial history, you turn to lenders that don’t have strict requirements for loan approval. Among these lenders are those who offer title loans.
Title loan lenders often won’t rely on credit history and tend to have a faster approval rate than traditional lenders. Instead of a credit check, title loans use your car as collateral for the loan.
Tennessee title loans can be a fast way to get the loan you need, but it does come with some drawbacks that should be taken into consideration.
What is a Tennessee Title Loan?
A title loan is a high-interest, short-term loan that uses your car as collateral to secure the loan. Title loans are used to gain money quickly when no other option is available for a loan. However, many title loan lenders can be predatory, and it is important to research them before agreeing to a loan.
Title loans are one lump-sum payment, paid when your loan term has ended. You will be charged any interest that has accrued as well as additional fees. Tennessee title loans are prohibited from having more than a two percent interest rate per month, and lenders cannot charge more than one-fifth of the loan amount in fees.
To apply for a Tennessee title loan, you are only required to have full ownership of your car, proof of ownership, and your driver’s license. Some lenders may also require you to show proof of residence in Tennessee and proof of income, such as a bank or social security statement. You will also need to be 18 years of age or older.
Title loan lenders rarely check credit or other financial history because your car will be the collateral to secure the loan. They will take your title in exchange for the loan. Like other collateral loans, the lender can repossess your car if you fail to pay the loan.
How do Tennessee Title Loans Work?
Tennessee title loans work similarly to payday loans; once you are approved for the loan, you will have only 30 days to pay back the loan in the full amount, or your car will be taken and used to pay for the remainder of the balance. In Tennessee, lenders can renew the loan after the first initial payment has been made.
With a title loan, the principal sum of the loan is based on 25% to 50% of the value of the car. That means if you have a car that is worth more money, say $20,000, you can get up to $10,000 in a title loan. However, if you have a car that has seen better days, you could get a loan that is only a few hundred dollars.
To determine a car’s value, a title loan lender will need to either see the car in person or have pictures taken to assess the condition of the car. They will look at the mileage, make, model, year, and any damage or modifications the car has had. If your car is in good condition, you should have no problem securing a title loan.
Advantages of a Tennessee Title Loan
Title loans are not for everyone; you must fully own your car to obtain one. They do come with some advantages, including:
- No credit checks – The biggest advantage of getting a title loan is that you do not need a credit check. Whether you have bad credit or a barren credit history, you are able to get the money you need without worrying about your financial background.
- Fast money – If you need money fast, title loans are a good option. Because they do not require a credit check, you can be approved in minutes and have the money within a few hours.
- You can keep your car – You will only need to give over the title of your car in order to gain access to your money, so you will still be able to use your car as needed.
Disadvantages of a Tennessee Title Loan
While you are able to get a loan quickly with a Tennessee title loan, there can be a lot of drawbacks to them if you aren’t careful.
- Short repayment terms – Title loans must be paid within 30 days, or else the lender can repossess your car per the agreement. Thirty days is a very short time period for a loan, especially if you have a large loan. It may not be enough time for you to find the money you need to pay it back, putting your car at risk.
- Car repossession – If you don’t pay back your loan in time, your car will be taken to pay the loan, leaving you without a mode of transportation and the opportunity to sell your car in the future.
- Debt trap – SInce title loans have a short repayment time frame and are often for those seeking money fast, title loans can be debt traps. Many who get a title loan will take out another loan to pay the title loan and fall into a cycle that is hard to escape.
- High-interest rates and fees – In Tennessee, lenders are prohibited from charging over 2% in interest and have caps on fees that help protect borrowers. However, these restrictions are not the same for every state, and title loans can have extremely high-interest rates that make it harder to pay back. Many states have unregulated title loans, and the interest rates can jump into three-digit percentages.
Alternatives to Title Loans in Tennessee
While title loans can be a good option if you own your car and are sure you are able to pay back the loan within 30 days, plus interest, there are other ways to secure the cash flow you may need, depending on your situation.
Personal loans
Although personal loans will check your credit history, there are many lenders out there that are willing to work with those who have poor credit. Personal loans can be used for almost anything, and you can often get the money on the same day. They also offer longer loan terms that will give you the time you need to pay off the loan and interest without worrying about taking out another loan.
Credit cards
Credit cards are a great alternative to title loans. As with personal loans, there are credit cards out there that take on those with poor credit or no credit history. However, they may have higher interest rates than credit cards for those with excellent credit. A credit card will allow you to have a limit that gives you access to the money as needed. If you can, you can pay off the balance monthly to avoid interest accumulating. Several credit cards also offer no-interest financing for the first year for those who qualify.
Credit card cash advances
If you already have a credit card, you may be able to get a cash advance if you need money quickly. While credit card cash advances tend to have high-interest rates, they may be lower than a title loan, and you will have more time to repay the advance back. Since you already have a credit card with a line of credit, you are more likely to be able to get the cash advance than other types of loans. Just be sure to pay the money back on time, or else the interest will build, and you might incur more debt than when you started.
Friend and family loans
It’s always difficult to ask to borrow money from friends and family, but it may be the best choice if you can’t find the cash elsewhere. They may be willing to loan the money to you without asking for interest. If you’ve had trouble paying them back in the past, a contract or other paperwork will help facilitate the deal to ensure that they won’t lose money and you are able to get the money you need.
Credit and debt counseling
If you are in a chronic cycle to pay your bills or are in debt, it can be helpful to reach out to a credit and debit counselor. These trained professionals can help you strategize a way to cut down on expenditures, reduce debt, and help improve your overall financial well-being. They can also help you with negotiation and communication skills so you can speak with lenders about your debts. There are nonprofit counselors available that do not charge any fees, but many might require a small fee for their services.
Is a Title Loan Worth It?
Title loans are helpful loans if you own a car, need cash fast, and know with certainty that you can pay back the loan within 30 days. In Tennessee, title loans are less of a risk, with laws in place to help protect the borrower. However, title loans do put your car at risk and can possibly trap you in a cycle of debt if you are unable to pay back the loan on time. They are also notorious for having high-interest rates.
There are many other options available to get the cash if you need it, such as asking friends and family or looking into personal loans that may not need the traditional credit check. If you do decide to go with a title loan, do your research on the lender and read the paperwork carefully to ensure that you aren’t putting your car and financial well-being at risk.
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Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.
