Car equity loans are subprime lending instruments given to borrowers with bad credit, who require cash quickly. They require only a pink slip as collateral so they are usually approved within minutes and processed in hours, provided all the requisite documentation is available.
Auto Insurance for Pink Slip Loans
When you take out car collateral loans also known as a pink slip loans, most lenders will hold on to the car equity or the pink slip while allowing you to keep and drive the vehicle. However, in order to protect their collateral, almost all equity loan lenders will require you to provide proof of auto insurance.
When a lender approves an equity loan for a borrower with bad credit, unlike a pawn broker, they do not keep the car, but hold on to the title only. If the vehicle is involved in an accident, it could damage and devalue the vehicle or expose the borrower to legal action, especially if there is no auto insurance on the vehicle.
To prevent this from occurring, most lenders will not grant an uninsured driver a cash equity loan. If you can get the basic minimum coverage required by law, it will satisfy the requirements of most auto collateral loan lenders and help you get quick approval for your loan.
Auto insurance is required by law in most states, although the specifics vary from state to state. For example, South Carolina mandates a bodily injury liability of at least $25,000 per person and $50,000 per accident. Its also requires a property damage liability insurance of at least $25,000 at the minimum.
Depending on the state and the vehicle being insured, your monthly payments on auto insurance will fluctuate greatly. However, you can get discount offers almost everywhere. To find the best rates you should compare quotes online.
There are a number of reasons why companies will offer discounted rates. For example, if you take a safe driving course, have a car model that is high on safety features, and install anti-theft devices, all these factors will help you get cheaper insurance. Other factors that can lower your costs are driving accident or ticket-free for three years, or driving less than 10,000 miles a year.
If you have your home or another vehicle insured with the same company, you can get a discount. Getting insurance through a group plan, such as your employers or alumni association can get you cheaper rates too.
Some vehicle owners have taken pink slip loans in order to pay their car insurance fees. This is a bad idea because it is not what equity loans are for. Pink slip loans should be taken only if you cannot get cash from conventional lenders and have no other option. They are usually for emergency expenses and carry higher interest than conventional lending instruments.
If you use them irresponsibly and do not repay the loan on schedule as per the terms of the agreement, you could get caught in a debt trap with penalties, fees, higher interest rates, rollovers and balloon payments that could force you to end up paying many times more than the amount you borrowed.