If you ever need some extra cash fast and you own a vehicle, two great options to look into are car title loans and registration loans. Both involve using some aspect of your vehicle to borrow money, and both let you keep your car while paying off the loan, but there are a few differences in how they work. So, one loan option might be better than the other, depending on your situation. With that in mind, read on to find out the differences between car title and registration loans and compare their pros and cons.
What is a Title Loan?
A car title loan uses your vehicle as collateral to secure the loan. Most title lenders require you to own your car outright to get approved. Title loan amounts are generally based on your vehicle's value, which the lender will determine during the application process. Once approved, you'll physically hand the lender your title in exchange for your loan amount. You can continue driving the vehicle while you repay the loan.
What is a Registration Loan?
A registration loan does not use your car as collateral. Instead, you use the vehicle's registration. Because of this, you may be able to secure a loan without owning the car outright. Lenders consider your vehicle's value as well as your income when determining the loan amount. And, just like with title loans, you can continue driving your car during repayment.
Pros and Cons of Title Loans
1. Large Loan Amounts
Title loans offer larger borrowing limits since you must own the car outright. You may be able to secure up to 50% of your vehicle's value.
2. Lower Interest Rates
Car title loans typically come with lower interest rates than registration loans. This is because registration loans don't use your car as collateral, so they are considered riskier to lenders.
Cons of Title Loans
1. Requires Full Car Ownership
You can only get a title loan if you own your car outright. If you still have an outstanding auto loan, you will likely be turned away.
2. Repossession Risk
If you default on a title loan, the lender has the right to repossess your car, leaving you without a vehicle.
Pros of Registration Loans
1. Full Ownership Not Required
You can get a registration loan without owning your car outright, making them more accessible.
2. Less Repossession Risk
Since the vehicle itself isn't collateral, the lender can't repossess your car if you default on the loan.
Cons of Registration Loans
1. Higher Interest Rates
Registration loans can come with higher interest rates than title loans because they don't involve using your car as collateral.
2. Lower Loan Limits
Since you can get a registration loan without owning the car outright, the borrowing limit can be lower than on a title loan.
3. Other Default Risks
The lender may not be able to repossess your car if you default, but they may send your account to collections or sue you for the remaining balance.
The Bottom Line
Either loan could be a good option if you need cash fast. If you own your car outright and need more funds, a title loan might be the right choice. And if you don't own your vehicle and are fine with a smaller loan amount, you can consider getting a registration loan. Regardless of the loan you choose, make sure you pay it back on time to avoid repossession or other problems.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
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Original Source: Car Title Loans vs. Registration Loans: Pros and Cons
