What is a Registration Loan? Pros and Cons

The need for emergency funds may arise due to a number of reasons such as medical treatment, payment for educational fees, property repair and more. The most suitable option in the times of financial crisis is to take a loan. Using your vehicle as a collateral for a loan is a good option to get access to funds in a hurry. Registration loan is a type of loan which uses vehicle registration as a collateral.

What is Registration Loan?

Registration Loan uses the registration of the vehicle as a collateral instead of the title of the vehicle or the vehicle itself. Unlike title loan which requires the borrower to own the car outright and hence the title, registration loan requires the vehicle to be registered in the name of the borrower, irrespective of the status of its title. The vehicle could be leased, financed or owned but the registration document must carry the name of the borrower.

While a title loan requires the vehicle to be free of loans and fines, registration loan has nothing to do with the title and relies on the vehicle registration only. The lender keeps the registration document of the vehicle but the borrower can continue to drive it for the entire loan period.

Eligibility for Registration Loan

In order to be eligible for registration loan, the borrower must be the owner of a vehicle. However, the borrower is not required to own the vehicle outright and can have a loan on it. Even if the title of the vehicle is in the name of the dealership or the lender of the loan, registration loan can be taken on it provided the borrower has the registration in his/her own name.

The borrower must possess a valid driver’s license issued by the relevant authorities of the state where the application for registration loan has been made. The details of the vehicle such as make, model and mileage must also be provided to the lender.

The lender assesses the income, employment status and the credit history of the buyer to determine the loan amount. The value of the vehicle is not considered to calculate the loan offer. However, some lenders may consider the resale value of the vehicle and offer a certain percentage of the said value.

Aspect	Pros	Cons
Approval Process	Quick and easy	High interest rates
Credit Check	No credit check	Risk of losing the vehicle if unable to repay
Access to Funds	Quick access to funds	Limited loan amounts
Credit History	Option for those with bad credit	Predatory lending practices by some lenders
Repayment Terms	Flexible terms	Potential for a cycle of debt
Vehicle Use	Use the vehicle while repaying	Limited regulations and consumer protections
Financial Assistance	Emergency financial assistance	Risk of repossession in case of default

Pros of Registration Loan

→ Outright ownership of the vehicle is not mandatory for registration loan. Thus, even if the vehicle has an outstanding loan attached to it, the borrower can still apply for registration loan, provided the registration is in his/ her name. This is at variance from title loan which requires a clear title.

→ Registration loan is an unsecured loan because the borrower is not required to provide any collateral for the funds. As a result, there is no risk of repossession. Repossession means, in the event of default, the lender cannot take the vehicle from the borrower. This feature is unlike that of title loan in which the borrower is at risk of repossession.

→ The borrower does not need to pay off the auto loan on the vehicle prior to applying for registration loan since only the vehicle registration is the criteria.

→ Application and approval process for registration loan is swift. Depending upon the lender, the borrower can apply online by filling the online form present on the lender’s website or visit the office of the lender in person to fill the application form. The approval process is swift which is particularly beneficial for people in need of money urgently. The borrower should read all the requirements and terms and conditions of the lender prior to filling the application form.

Cons of Registration Loan

→ Registration loans carry much higher interest rates as compared to title and other kinds of loans. This is because there is no collateral on the loan unlike title loans in which the vehicle itself is a collateral. Absence of a collateral increases the risk for the lender, hence high interest rates are charged to compensate for the risk.

→ Registration loans are not secured by collaterals. Thus, the lenders evaluate the credit score, income and employment status of the borrower to decide whether or not to approve the loan. Consequently,  people with a bad credit history or without a steady income or employment find it difficult to get registration loans.

→ The loan amounts sanctioned under registration loans are not very high. Depending upon the lender and the state, the loan amount ranges between USD 200 and USD 4000. Since registration loans do not mandate outright ownership of the vehicle as is the case with title loans, the borrowing limits are low. The loan amount may not fulfil the needs of the borrower, thereby necessitating more loans from other sources.

→ Lenders of registration loans cannot repossess the vehicle in case of default. However, the lenders have the option to file legal suits against the defaulting borrowers to get back the balance.

Conclusion

Registration Loan is a good option to get access to funds quickly if you do not own your vehicle outright and simply require a moderate loan amount. Title loan is the better option if you have a clear title on your vehicle and need more funds than possible with a registration loan.