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Driving on empty

If you're strapped for cash, have bad credit and need a loan, there is a solution: a title loan.

Title loans let you use your vehicle as collateral so that you can obtain cash in a hurry -- but you're going to have to pay significantly higher interest rates for it, says Jeffrey Schwartz, executive director of Toronto-based Consolidated Credit Counseling Services of Canada, Inc.

Here are the basics on title loans in Canada -- how they work, what you need to qualify and what you need to be aware of before sealing the deal.

What are title loans?
"Essentially the borrower is giving over title to their vehicle as security for the amount of the loan," says Schwartz, who adds that title loans are far more common in the United States than in Canada.

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With these types of loans, your credit history shouldn't be a factor. There are no credit checks and you don't need to prove who you are or where your income comes from, says John Mann, owner of Title Loans Canada. Even with a bankruptcy on your record, you can still qualify for a title loan.

In Canada, the interest rates vary from about 35 to 65 per cent APR (annual percentage rate), says Mann. However in the United States, rates range from 112 to 220 per cent APR, he adds.

Just because you're using your car as collateral, it doesn't mean the company providing the title loan will own your car. Your car remains in your name and possession for the duration of the loan.

Quick and easy
People shouldn't be scared of getting a title loan, says Montreal-based Rachel Schwartz of BHM Financial, Inc., specialists of no credit and bad credit loans. In addition to cars, they also give title loans for mobile homes, trucks, trailers, RVs, horse trailers and boats. "It's not the typical kind of loan people usually get but it's really worthwhile in the long run."

Clients are not just people with bad credit; they also have good credit. But they take out title loans because they are quick and easy, she says.

Case in point: Your loan is effective almost immediately as it usually takes about one hour to start receiving the loan, says Mann of the loan timing at his company.

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-- Posted July 15, 2011
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