Title Loans Short Term Emergency Loans Only
Title loan companies as in any industry have both the good players
, and the bad. The majority of the title loan companies in the industry charge the maximum rate the states law will allow. In most states there is a maximum interest rate that a title loan company can charge. For example, in the state of Georgia the max allowed interest rate a title loan lender is allowed to charge is twenty five percent. Be aware that this is a monthly rate. So for example, if you borrow say $1,000, your monthly interest due to the lender is $250.00. Think about it, that's the amount you owe the lender for interest. So when you pay the $250.00 at the end of every month, you will still owe the title lender the original $1,000.00 dollars you borrowed to begin with. So with that said, let's take a look at this transaction based on the amount of just interest you will have paid if you kept this title loan with the lender for a year. If you were to keep the loan out for a full year, you will have paid out to the lender a total of $3,000 and again, you would still owe the $1,000.00 principal portion of the loan you borrowed in the first place. In other words, you would pay $250.00 per month for a grand total of $3,000.00 for the year, and still not have paid a dime towards the principal.
Many of these title loan companies actual biggest profit stream comes from repossessing your car when in many cases the payment on the loan is a mere day or two late, and reselling it on a car lot somewhere. Most title loan companies lend at the most 40% of the wholesale value of your vehicle. So let's discuss what wholesale value is. Wholesale value is the lenders estimate of what they believe they will be able to sale your car for at an auction very quickly. Say for example your cars retail value or value most consumers would be willing to pay for your car at any given car lot, is $4,000.00. But the wholesale value is only half of this or $2,000.00. Now the title loan lender agrees to lend you 40% of your cars wholesale value, or 40% of $2,000.00, or $800.00. So the lender lends you eight hundred dollars on your $4,000.00 car. Now let's say you get a little behind, and can't pay you your monthly payment right on time and within a day or two of being late on your payment, the title loan lender decides to take your car. You have just essentially sold your $4,000.00 car to the title loan lender for eight hundred dollars.
Now the title loan lender takes your $4,000.00 automobile that you essentially sold to him for $800.00 and sales it on one of his car lots for above retail for $5,900.00. At the end of the deal, the title loan lender has essentially bought a $5,900.00 car for $800.00. Wow what a business, believe me when I say, this is going on daily. Getting caught up on the wrong end of these transactions can be an extremely painful experience.
Here's a strong word of advice. These companies, the fair and honest ones at least can be a God send when you're in a financial bind, and many of them are truly fair and honest businessmen. What you absolutely must keep in mind when taking out a loan with a title loan company, is you must have a realistic exit strategy. Do not turn these title loans into long term loans. Have a realistic plan for getting the loans principal, and interest paid off very fast. These loans should only be treated as short term emergency loans.
by: Gen Wright
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