Title Loans refer to the issuing of loans that require an asset as collateral. The asset can vary from a piece of land to an automobile or anything else. The most common type of title loan generally approved in the U.S. is the car title loan, wherein the car may be used as collateral for a certain sum of money. The exact origin of title loans is unknown, but they’ve been around for some time. In early times people used their land and pets as collateral for loans.
How do title loans work?
The process of title loans varies from state to state, but the central idea is the same. Here is a brief process of how a title loan works for a registered loan company:
- The borrower contacts the company and issues an asset as collateral.
- The lending company checks the asset and estimates a price.
- The company then lends up to 25% of the asset price for a small time period.
- If the money is not returned within the period, then the asset can be kept by the company.
The legality of title loans:
The Arkansas Short Term Loan Act prohibits the use of car titles as an asset for collateral in Arkansas. Thus the car title loan is banned in the state of Arkansas. However, land and jewelry can be used as collateral for title loans in the state of Arkansas.
Alternatives for title loans:
Since vehicle title loans are illegal in the state of Arkansas, the following are a few alternatives that can be used if someone is in dire need of money-
- Land Title Loan – Issues a piece of land as collateral for a certain time.
- Gold or Jewelry Title Loan – Collateral used can be gold or any piece of jewelry.
- Boat Title Loan – Boats can also be used as collateral for title loans in the state of Arkansas.
- Pawnshops – Pawnshops are useful for small loan amounts.
Basic regulations regarding title loans:
Title loans are governed by federal laws as well as state laws. The federal laws allow cars, land, jewelry and other items as collateral. The state of Arkansas also has laws regulating title loans. These laws assist in better governance of the state. Following are the laws regarding title loans in Arkansas-
- Car Title loans are illegal in Arkansas.
- Proof of Residency – Any official document that serves the purpose of identifying the address of the borrower must be presented.
- Proof of Income – Income doesn’t need to be from a job, this is only to ascertain that the loan can be paid off.
- For Land Title loans, interest can’t exceed 25%.
- In the case of pawning, the item cannot be stored for more than 2 months.
Although car title loans are illegal in Arkansas, there are several other ways of acquiring a loan. Beware of the illegal companies offering car title loans.