Credit score has a significant impact on lenders when deciding whether or not a new loan should be approved. A good credit score could be the single deciding factor that determines whether you get approved for any loan.
Loans, regardless of how small or how large, are affected by credit. A bad credit score could also lead to paying higher interest rates on loans. A loan approved with higher rates result in spending significantly more money over the term of the loan.
Building good credit may seem like an impossible task. It may even take years to improve for some depending on your past credit history. However, there is an option available that can help improve your credit. This option does not depend on having a good credit score. In most cases, a credit score doesn't affect the loan at all. Credit is irrelevant because this option is secured by using the title of your car.
What is a Title Loan?
A title loan may seem scary if it isn't fully understood. With the right financial discipline, title loans can be used to significantly improve credit scores.
A title loan is a collateral type loan. Your vehicle title is used as security against the amount borrowed. The maximum amount that can be loaned is determined one of two ways. It's either based on the Kelly Blue Book value of the vehicle or the amount of equity you have in the car if it hasn't been paid off.
How do I get a Title Loan?
First, you must fill out an application with the lender. The process is easy, just google your location and the phrase “title loans” and find a title loan company. For example, if you live in Riverside, California, just google “Riverside, California, title loans” and visit your local title loan company, and they will get you started on the process.
During the approval process, several documents may be required including the title to the vehicle. Lenders also need proof of full coverage insurance.
In addition, you will need to show government identification at the time of the application. Other requirements involve proof of income. These include things like paycheck stubs or bank statements.
Often several pictures of the current vehicle are requested that detail the condition of the car. Proof of residency such as a utility bill addressed to you might also be a necessary document. Some companies may even ask for a few personal references such as friends and family members.
How are Title Loans Different from Other Loans?
Title loans are not like other types of loans because they do not depend on your credit score. Since title loans are secured by the value of a vehicle or equity in a vehicle, then most anyone with a vehicle can be approved regardless of credit.
How do Title Loans Help My Credit?
As far as credit score is concerned, the amount of the title loan isn't crucial to creditors. The timely monthly payments are what future lenders will look for on a credit report. Since a title loan will be a new creditor on a credit report, it helps to establish consistent payments on your report.
Payment history is the factor that has the most substantial impact on your credit. If payments are made on time every time, then your credit score will slowly improve. Each subsequent payment made on time will be equally crucial over the course of the loan.
How Can I Maximize a Title Loan’s Benefit on My Credit?
The best way to maximize a title loan to improve your credit score is to use the amount borrowed to pay off existing debts. The practice of using a new loan to pay off a couple of old loans can be beneficial in two ways.
First, it lowers your debt to income ratio on your future credit reports. This rate compares your monthly income against your monthly expenses. Debt to income is a significant calculation that most lenders compute to determine risk.
The second benefit to clearing outstanding debts with one new loan is by consolidating existing debts. Combining multiple loans on a single loan results in less stress for you. There will no longer be a need to keep track of several monthly payments to different creditors.
Eliminating debt combined with a consistent on-time payment history for a new creditor, you maximize the benefits. This method is the most efficient way of improving your credit score with a single title loan.
Conclusions
Using a title loan is a sound way for anyone who has bad credit to start rebuilding their credit. By slowly turning your credit around, future credit checks will result in lower interest rates.
As with any loan, it is important to be financially disciplined. It is critical that payments are made on time each month to maximize the benefits of a title loan. Title loan applications are typically approved regardless of poor credit, bad credit, or even no credit because the loan is secured by collateral.
After a few months of regular and timely payments on a title loan reported to the credit bureau, a credit score will start to improve. Now that prior debts have been paid off in addition to a new loan's monthly payments being made on time you will be maximizing the benefits of a title loan.
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