Car Title Loans: Subprime Loans For Borrowers With Bad Credit

Have your FICO scores hit rock bottom? Wondering how to boost your scores again? A low rating can be cause by a number of reasons, including human and reporting errors, defaulting on loan or mortgage payments and living beyond your means. But there are financing options, such as car title loans, that can help subprime borrowers get cash to repay debts and become financially solvent again.

Car title loans and other subprime lending products are designed for subprime borrowers who need money for a large purchase or expense. When used wisely and repaid on schedule, a title loan can even help you improve your low rating.

What are Credit Scores?
A credit score is just a reflection of how financially reliable you are. A good rating tells a lender that you have a history of repaying loans on time, while a low score is an indicator that you have defaulted on loans or are living beyond your means. Lenders use your score to assess whether you are a good risk for a loan or other debt.

In earlier times, these records were maintained by store clerks against a customer's credit against merchandise purchased. They accepted a marker-the customer's promise to pay the cost of the merchandise purchased plus interest and these were all included in detailed lists that recorded all loans and status of payment.

Today, the three credit bureaus, Equifax, Experian and TransUnion, keep tabs on individuals in the U.S. and maintain detailed reports of their financial history and personal information. All your financial transactions with banks and lenders are reported to these agencies.

Fair Isaac's FICO scoring model is the primary scoring system used by the agencies to calculate your score. When they want to assess your risk as an investment, lenders will perform a mandatory credit check by purchasing your information from the agencies.

If you have a history of late payments, repossession, charge-offs, the agencies will create a positive or negative mark on your credit report accordingly. A history of credit abuses will result in a low FICO score. Other things that can affect your rating include bankruptcies, court judgments and other public records. Lenders will assess your creditworthiness based on your FICO score and approve loans if you have a good score.

Car Title Loans Can Help You Reestablish Credit
Do you have a low FICO score? It's not a life sentence. But as long as you maintain that status, traditional lending agencies will consider you a high-risk investment. However, you can still qualify for subprime lending instruments such as car title loans. A low rating just means that you are a high-risk borrower and will be charged a higher rate of interest to offset the risk taken on by the lender.

Car title loan companies only require that you own a clear pink slip-a car title that is paid off or nearly paid off-to offer the lender as collateral, and you can continue to drive your car while you repay the loan. Because the lender has to recover the cost of repossessing and selling your vehicle, should you default on your loan, they will pay you from 25 to 50 percent of your car's value.

If you use the cash from the title loan wisely and repay the loan on schedule, it will help demonstrate responsibility in managing your finances. The bureaus are more interested in your current payment history than in past history, so making payments regularly and on time can help you create a positive payment record and reestablish credit.

This will improve your FICO score and allow you to borrow funds from conventional lenders and banks at lower rates of interest. That is how a car title loan can help you get out of a bind and help you become financially solvent again.

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