Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
“`html
Secured Loans vs. Title Loans: What You Need to Know
Understanding Secured Loans
A secured loan uses your property as collateral. If you default on a secured loan, you may forfeit the collateral you’ve pledged so the lender can sell it and use the proceeds to pay off your loan. Common examples of secured loans are mortgages, home equity loans, and car loans.
Secured personal loans are another option. These loans allow you to borrow a lump sum and repay it with interest in fixed monthly installments. A secured personal loan may help you qualify for a loan you otherwise wouldn’t be approved for or get a lower interest rate, especially if your credit score is on the lower end of the spectrum.
Types of Secured Personal Loans
Most personal loans are unsecured, but some banks, credit unions, and other lenders may offer secured personal loans that use your assets as collateral. Here are a few examples:
- Share-secured loans: These loans use your savings account to secure a personal loan.
- Securities-backed credit: If you have substantial investment assets, you may be able to access a securities-backed line of credit from your bank or brokerage firm.
- 401(k) loan: This arrangement lets you borrow money from your employer-based retirement savings.
- Cash value life insurance: You may be able to borrow against the cash value of a whole life or universal life insurance policy.
What Is a Title Loan?
A title loan typically uses your car or other vehicle as collateral to secure a short-term, high-interest loan. Auto title loans are aimed at people who might have difficulty passing a credit check. According to the Federal Trade Commission, car title loans share common features that are uncommon in traditional lending:
- Loans have very short terms, often coming due in 15 to 30 days.
- Loans generally top out at 25% to 50% of your vehicle’s value.
- Interest rates are sky high: You may pay 25% of the loan amount in fees on a one-month loan—equivalent to an annual interest of 300%.
- You may need to own your vehicle free and clear.
- You may be required to install a GPS device on your vehicle so the lender can track it down and repossess it if you default on your loan.
- Loans may automatically roll over if you don’t pay the full amount due, costing you a second round of interest plus fees.
Title Loan vs. Secured Loan
Though they sound similar and both require collateral, title loans and secured loans follow different paths. Here are some key differences:
| Secured Loan | Title Loan |
|---|---|
| Personal loans secured by CDs or savings, investments, or other assets | Short-term loans that use a vehicle title as collateral |
| Interest rates typically top out at or around 36% | Fees can be equivalent to an APR of 300% |
| Your credit score and credit history help determine your interest rate and loan terms | Often, no credit check required |
| Debt-to-income ratio factors into how much you can borrow | Loan amount may be based on the value of your vehicle |
| Typical loan terms of two to five years | Loans are due to be repaid in 15 or 30 days |
| Loan is paid off at the end of the term | Loans may auto-renew with additional interest and fees if not repaid in full |
| A lien may be put on your asset if you default | May require you to transfer your car’s title and provide a set of car keys when you take out the loan |
How to Choose Between a Secured Personal Loan and a Title Loan
A secured personal loan from a bank, credit union, or online lender offers several advantages over a typical auto title loan, including much lower interest rates and more reasonable repayment terms. If you’d like to find out what your options are, check with your bank or credit union, or consider using an online marketplace to find secured personal loans that match your credit score.
If you’re in need of emergency cash, try these strategies:
- Negotiate with your creditors. You may be able to get a one-time extension on your rent or permission to skip a payment without penalty.
- Look for a payday alternative loan from a credit union. Some credit unions offer short-term payday alternative loans that can float you a little cash. Interest rates are high, but typically lower than what you might get from a payday lender or title loan company.
- Take a cash advance on your credit cards. This can be an expensive option, but probably is still less costly than a title loan.
- Borrow from friends or family, but be cautious about borrowing money you can’t repay.
Wherever you decide to apply for a loan, be sure to review your loan documents carefully: Lenders are required to explain your loan’s APR and total costs. Look closely at the documentation they provide and, if possible, compare multiple options to help ensure you’re getting the best deal. Additionally, make sure you understand what happens to your collateral if you can’t make your payments.
The Bottom Line
Using your assets as collateral can help you lower your loan costs or improve your chances of getting approved for the loan you want. Secured personal loans have advantages over title loans, including lower interest rates, longer loan terms, and fewer stipulations like auto-renewals that may land you further in debt or at greater risk for repossession.
Meanwhile, one of the best reasons to build and maintain good credit is to give yourself options when you need a loan. Whether you need a loan now or are considering one in the future, checking your credit score and credit report is a great place to start. You’ll get a better handle on what types of loans and rates are available to you, and get suggestions on raising your credit score so you can improve your outlook over time.
Contact O1ne Mortgage for Your Mortgage Needs
At O1ne Mortgage, we understand the importance of finding the right loan for your needs. Whether you’re looking for a secured personal loan or exploring other mortgage options, our team is here to help. Call us today at 213-732-3074 for any mortgage service needs. Let us help you secure the best loan terms and rates available.
“`
