Got low credit scores and an urgent need for cash? Consider getting a title loan. It is the most convenient lending option for those who don’t have a hope of getting approved for a loan from a bank.

Title loans are appealing as it buys time, providing the cash you need to pay the bills you can no longer delay (e.g., utility bills, medical bills). As a bonus, you can pay it back in installments.

Unfortunately, some lenders only give borrowers one month to pay back their title loans. Others are inflexible with their payment terms and would refuse to extend the installment plan so borrowers can reduce their monthly payments.

The result?

Borrowers end up taking out a new loan every month to hold on to their cars.

VIP Finance of Texas offers a better alternative: title loan buyouts.

A Lot Like Refinancing

A title loan buyout is similar to refinancing. It is an agreement between two lenders to transfer a title loan from the one to the other.

A buyout happens when a borrower can no longer afford to pay a title loan given its current terms and decides to seek out a new lender that buys title loans.

Borrowers seek title loan buyouts in the hopes that they can reduce their monthly payments. But first, they need to look for a title loan buyer that will:

  1. Pay the original lender the full amount they owe;
  2. Give them a lower annual percentage rate of interest (APR), and
  3. Offer a longer term with more installments (e.g., 12 months instead of one).

The new lender will then draft a contract detailing the improved and more affordable payment terms.

What Happens to the Car’s Liens?

Part of the contract signing is the turnover of the liens on the car title from the original lender to the new lender. Nothing else changes from a borrower’s perspective:

  1. The new lender is their car’s liens holder and temporary owner;
  2. They can continue to use their car, and
  3. They must pay their monthly dues, or they may have to surrender their car as payment for the loan.

Title Loan Buyout in Figures

A buyout is the better option when you need to reduce your installment payments because you’re struggling to raise the money every month.

The challenge here is finding a title loan lender who’s willing to give you a lower monthly interest; otherwise, the buyout becomes a band-aid solution, and you’ll be hunting for another buyout option a couple of months later.

For context, here’s an example:

Suppose your original title loan gave you $1,000 for a 30% APR payable for 12 months. Your monthly due would be very affordable: only $97.49 with interest.

If you look at the accumulated sum, however, you’d be paying $1,169.85 for your $1,000 debt.

Let’s suppose again that you found a new lender that’s willing to give you a much lower 6% APR with a 12-month term.

Your monthly due would be much lower at $86.07 and your total payments (with interest) would only amount to $1,032.8. That’s approximately $11.42 of savings each and every month, or $137 dollars over the course of the 12-month loan term.

The above shows that if you’re considering a title loan buyout, you need to find a lender that can give you a much lower APR.

The more you can save, the more it makes sense to shop conscientiously for title loan lenders.

Regarding low APRs, you’ll be hard-pressed to find another lender that can offer a 6% rate as we do at VIP Finance of Texas.

Drop by any of our locations in Texas, and our loan officers will be happy to walk you through the process of a title loan buyout.