Car title loans can offer you an opportunity to get a short-term loan very quickly, but just like car title loans have positive aspects, they have also fairly negative aspects. The primary potential negative outcome for a car title loan is the same as the negative outcome for any type of secured loan: you risk getting your property repossessed if you default on your loan.
If you don’t have any other options, of if you need funds as quickly as possible, a title could could make quite a bit of sense for you. In most case, though, they are something to consider staying away from.
If you are seriously considering taking out a car title loan, you probably want to know exactly what you can expect. Keep reading to get a crash course on car title loans, what they are, and what you can expect to pay.
In order to borrow a loan against your vehicle, your going to have to have a few things. The first thing you’re going to need is a far amount of equity in your car. In most cases, you are going to need to have paid off all of the loans you used to purchase the vehicle initially. While some lenders will allow you to borrow against your car if you are still paying off your loan, it isn’t all that common.
Car title loans can range from just a few hundred dollars to several thousands dollars. The amount you can borrow is based entirely off of the value of your car and the equity you have in it. The greater the value of the car, the more you will be able to borrow. Still, don’t expect to get a loan worth the entire value of your car. Lenders obviously look out for themselves first, and they operate assuming that the worst case scenario – which is obviously you defaulting on your loan – is going to take place. That means that they’ll repossess your car and sell it to recoup their losses. In the even that this comes to pass, they don’t want to work hard to get someone to buy the vehicle based on what it’s actually worth. So, most car title loans end up being worth anywhere between 25 percent and 50 percent of the value of your car.
Car title loans are typically short-term loans, that means that the entire amount you owe is typically due to your lender between 15 and 30 days. While there are exceptions to this rule, it is the most common type of payment term with car title loans. The shortness of these terms means that you will have to quickly come up with the funds in order to complete your repayments. This type of payment is known as a balloon payment. If you are unable to pay back your loan within the term, you will have an option to roll over your loan to the next month, but that will obviously cost you more in fees, interest charges, and more.
The reason why car title loans get so expensive is because they have relatively high interest rates. For many title loans, interest rates as high as 25 percent are the norm. That means that if you take out a car title loan worth $1000, you will be expected to pay back at least $1250 by the end of your term. While that may not sound too bad, consider the fact that many borrowers have to roll over their loan because they can’t pay it off by the end of their original term. That means another 25 percent interest tack one. If you end up carrying the loan over for an entire year, you can expect to owe 300 percent of your loan in interest charges alone. That means that if you borrowed $1000, you will owe $3000 in interest fees alone. That’s quite the bill and may have you thinking twice about taking out a car title loan.
If the high interest loans weren’t enough to make you think twice about taking a car title loan, this surely will. The biggest risk connected to all car title loans is that if you default on your loan, you risk having your car repossessed. If they do repossess it, they will sell it, keep the money, and you will still be on the hook for any money left over that is still owed on the loan.
If you think that this is an empty risk, consider the fact that title lenders are known to require you to install a GPS system in your car so that they can track it at all times. They are also known to request you to leave a second set of keys at their office so that they can enter and turn on the car in the event that you default on your loan.
If your car ends up getting repossessed, your financial situation can get dire quite quickly. Consider the fact that you may need your car for work. If you lose your car, you could lose your job. That will only make things worse for you.
Still, if you are confident in your ability to pay back your loan, you can avoid all of these negative aspects altogether. Whether or not car title loans are a smart choice really depends on your financial situation.
So, now is the time to step back, take a look at your finances, and decide what the best option for you is going forward.