If you’re a small business owner, you must be familiar that a running business may come into any type of financial emergency, even the startup financial plan is very much clear; Let it be an unplanned yet crucial purchase of an inventory, clearing debts or a natural disaster, your business must be ready to meet the cash emergency!
Using Your Vehicle as Collateral to Meet Business Emergency
You may approach friends and family for a quick loan but, you cannot be sure if they will be able to lend you money in emergency or not. Credit card funding is also an option, but it has limitations, i.e. high-interest rate, lowering credit score etc. Bank loan approval is quite a time taking task and you may not think of this option in case of an emergency situation.
Title loans (where an asset is required as collateral) can be a way better alternative in such situations. The best asset that you can use for a title loan is your vehicle, let it be your personal car or a vehicle from your fleet.
Title loans are popular mainly for two reasons:
1- Lenders do not consider applicant’s credit rating when determining qualifications.
2- These loans can be approved very quickly.
It’s simple; you have your vehicle valued by the lending company and can have a loan depending on the value of the car. The lending company usually can go up to 50% of the value of the car at wholesale price but the interest rates go higher as the loan amount goes up.
Requirements for a Vehicle Title Loan:
The company takes the registered documents of your car as a guarantee, so you must have original documents of your vehicle. You also need to provide an ID (government issued), a lien-free car title and some basic income details along with information on the car insurance (not all states require this).
The Pros & Cons of Vehicle Title Loan:
Vehicle Title Loan is popular because of ease of the process which is faster than any other traditional loans. But, that’s not the only benefit. Here are some more:
- You do not require too much of documentation as the lending company only needs to assess the value of your car.
- It also doesn’t affect your credit score, so just in case if you’ve applied for any other loan, this one will not upset your application.
- These loans are secure.
- It’s probably the best option for people with poor credit history to improve their credit score.
- And above all, you can continue driving your car!
Since every good thing comes with some drawbacks too; there are a few associated with vehicle title loans:
- The interest rate is low in the beginning, but if you continue to extend your payments further out, the interest rate grows.
- Car title loans are given on the notion that you will pay them back in a specified period of time. Failing to do so will put you at risk of losing your vehicle and so your overall credit score may go down.
Tips to Shop for the Best Vehicle Title Loans
Though you might want to check multiple car title companies for the best interest rates, make sure to read out their agreement details and cross-question the lender i.e. if you can’t pay or are overdue on your monthly payment, would the interest rate go higher or is there a penalty? If you want to clear the loan altogether at some point in the future? What will be the terms for balloon payments? And so on….
Once you’re happy and have got all information you can go ahead and sign to their terms.
The Bottom Line:
Vehicle Title Loan is one of the best ways to meet your financial emergencies happening in your business. Of course, there are other ways too i.e. Credit Card or asking a friend to help out in a business emergency, but when nothing is working, your vehicle can help you for sure! Whatever the option might be, we ask you to be as informative as possible to the lender on your need and do good research on all available options.