Will Getting A Title Loan Lower My Credit Score?
A title loan allows you to use the equity in your vehicle to borrow money. If your car is worth $10,000, a lender may allow you to borrow $6,000 and put a lien on the vehicle until the money is repaid. While these loans may offer credit to those who may not otherwise have access to it, what impact will they have on a borrower’s credit score?
The Loan May Not Be Reported to Credit Agencies
Depending on the lender, the loan may not even be reported to the credit agencies. This is because your credit was not used to determine your loan balance or whether or not you qualified for the loan. As the loan is secured by the vehicle, a lender will simply repossess it as opposed to taking other legal action against you to collect on the balance.
No Need to Worry About Hard Inquiries
When a lender checks your credit report, it registers as a hard inquiry. Hard inquiries may lower your credit score by 20 points or more whether or not you get the loan. The good news is that these decreases are temporary as the inquiry goes away within two years at the most. As there is no credit check involved with a title loan, there is no inquiry or hit to your credit score.
Bankruptcy May Not Eliminate the Title Loan
Bankruptcy can have a significant impact on your credit score. If a bankruptcy was caused because you couldn’t pay back a title loan, it is unlikely that the debt would be discharged. As a secured debt, the lender would still have a valid lien no matter what you chose to do to seek debt relief. Therefore, you may be forced to reorganize the debt and repay it in three or five years through Chapter 13 bankruptcy. While this may impact your credit in the short-term, you could rebuild it quickly after you file.
The Loan Typically Gets Paid Off in 30 Days or Less
Most title loans get paid back within one or two pay periods. If you can’t repay the loan in that period of time, it may be possible to extend the loan by paying a fee. In such a scenario, you would like pay the loan back under new terms or have it paid off in one or two payments under the original terms. Generally speaking, one or two loan payments don’t have a large impact on your credit score.
Title loans are ideal for those looking for quick cash without the need for a credit check. As long as you own the car and have sufficient equity, a loan can be made that may not be reported to credit agencies, which means it has little to no impact on your credit score.