Facts about Car Title Loans

Another Source for Immediate Cash

It happens to everyone. A medical emergency, an unexpected home repair, or some other unplanned event occurs that puts you in the uncomfortable position of needing a large sum of cash quickly. If you are the typical American consumer, you probably have very little or no savings (an emergency fund) and no available credit on your credit cards.

Life can definitely hand you some difficult financial situations and the stress of trying to come up with a significant amount of money in a short time can be overwhelming. If you have tried unsuccessfully to get other types of loans, a car title loan can be a reasonable choice.

In simple terms, this is a short-term personal loan for which you put up your car as collateral in return for a specified amount of cash. You should think carefully before applying for a car title loan as they can be very expensive and have a high-risk factor.

The typical car title loan has an interest rate of 300% annually. So while you may be considering this type of loan as a way to get cash funds quickly, you will be paying a hefty sum in interest charges for the privilege. Studies show that most car title loans are renewed after the initial time period ends, some as many as six times.

Car title lenders, on average, write-up 3.5 times the number of renewal loans per month than new loans. While they market their loans as small emergency loans, the reality is they design these loans to keep borrowers in a cycle of debt. This is how they make their profits.

It’s important to remember that unlike an unsecured personal loan, a car title loan requires you to use your car as collateral. This means if you ever default on your loan, the title loan company can legally take possession of your car, leaving you with no means of transportation.

Normally, you will only be able to borrow about 30%-50% of your car’s market value. This means that most car title loans are “over secured”. You agree to repay the entire amount of the loan, including interest and fees, in one lump payment, usually in one month’s time. If you find you are unable to fully repay the loan at that time, you either have to pay another fee to roll the loan over for another month, or else the lender can come and take your car, sell it, and keep all the profits. The key to successfully managing this type of loan is to pay it back fully within the initial time period.

If you are in need of emergency cash, investigate all the options available to you and then make an informed decision based on what types of loans you qualify for. A car title loan, while giving you quick access to funds, comes with a high price and more than a small amount of risk. Seriously consider all aspects of this type of loan, including the possibility of losing your automobile.

Interest rates on car title loans vary from state to state. Some states have even banned car title loan companies altogether. If these loans are offered in the state where you reside, thoroughly investigate all of the companies before signing any car title loan agreement. Don’t put you or your vehicle in jeopardy.