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What is a title pawn?
A title pawn is a way to get approved for a short-term loan,
usually through some form of pawn shop.
The short-term loan is based on the presentation of a title to a
vehicle (car, truck, motorcycle, etc) that is owned out-right by the
prospective borrower. The
broker evaluates the value of the vehicle in question and will usually
offer a short-term loan equal up to half of the wholesale value.
Short-term loans for the title
pawns vary in the amount of time for which they are lent, dependent upon
the needs of the borrower and the value of the title. Once these terms are discussed, the borrower will sign
paperwork and leave the title to their vehicle as collateral with the pawn
broker.
What is collateral?
It is something offered in return for a loan, in case the borrower
does not pay back the amount of the loan in the predetermined period of
time. Be aware that, should
you default on your short-term loan payment, you run the risk of losing
your vehicle. The pawn broker
is entitle to keep the title to your vehicle should you not pay back the
borrowed amount.
Note that the interest rate on
title pawns is the same as any short-term loan and will be excessive in
comparison to a standard bank loan. However,
often the borrower cannot be approved for a typical personal loan or needs
the cash much more quickly than a bank could provide.
Therefore, the risk factor that the pawn shop is looking at
warrants the higher interest rate.
Short term loans based on a title pawn can extend
for longer repayment periods than many pawn loans.
However, the longer the repayment terms, the higher the interest
rate will be. It is always
best to balance the situation, making sure that the repayment period is
long enough for you to be able to meet the terms, while not paying
exorbitant interest fees.
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