Tailor-Made For Subprime Borrowers

Subprime lending provides a service to people who would otherwise be precluded from making large purchases on credit. Subprime loans are also available for mortgages, credit cards and car loans. People with bad credit often have to choose subprime lending; one type of which is the title loan.

As long as you have a clear vehicle title to put up as collateral, and your car loan is paid off or nearly paid off, you can easily qualify for a title loan. The regulations for auto title loans vary from state to state. In New Mexico, online lenders do not even require that you live in the state.

Since in-state residency is not a qualification in New Mexico, all U.S. residents can get cash from lenders who are certified to operate in New Mexico, even if the lender is not certified to operate in the borrower’s state.

Auto title loans are secured loans for a lender because they use a vehicle title as collateral. That way, lenders can offer slightly lower interest rates. However, because it is still a risky investment for a lender, the interest rate will always be well above conventional rates.

When a loan goes into default, the lender often has to spend more to recover its costs. People with bad credit present a higher risk of charge-offs and repossessions for lenders. Therefore, to offset the risk, lenders charge higher interest rates and fees when they approve subprime loans, such as auto title loans.

Lenders will offer anything from 25 to 50 percent of the car’s wholesale value as a loan. In some cases they may go as high as 100 percent. However, unlike a pawn shop, most will allow you to keep and drive your vehicle while you repay the loan, while they hold on to the title as collateral.

In states like New Mexico you can choose a lender online. But a lot of desperate and cash-strapped borrowers find themselves at the mercy of predatory lenders because they did not read the agreement carefully and find out what they were letting themselves in for.

It is wise to do your research before choosing a reputable lender. You could read reviews and ratings about them online, but never fail to read the fine print on the loan agreement. Find out about the annualized rate of interest you will be paying, the loan repayment terms, as well as what happens at the end of term.

Predatory lenders could trap you in a perpetual cycle of debt that could prove disastrous for your finances and your credit score. Find a lender who will customize the terms of the lending agreement to match your needs and repayment ability. You should be able to make affordable payments to avoid repossession of your vehicle.

If you repay the loan on time, you could even establish a positive payment record and reestablish your credit. This will give you more and better options for borrowing money in future so that you never have to use a car as collateral for auto title loans again.