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Be Wise When Availing An Auto Title Loan

Be Wise When Availing An Auto Title Loan

Unfortunately, clients are misled by the quick money that a car title loan offers

. Title loans come with large interest rates so be wise when reading the fine print and working out the details of your loan.

To receive a car title loan, the consumer must sign over their car title as collateral. Set up as open-ended credit, car title loans are not subject to an interest rate limit or a maturity date.

So how does one get to have a car title loan? It's simple. A customer enters the finance office to apply for a car title loan and is asked how much money they would like to borrow.

With no credit check and no delay, the borrower can obtain a loan by exchanging their car title and an extra set of keys to their vehicle as collateral. The loans are typically less than $1,000. Be Wise When Availing An Auto Title Loan


The borrower then makes the first payment after 15 days and then every 30 days thereafter. The borrower pays one percent interest per day and must pay a minimum of ten percent of the loan principal with each payment, excluding the first payment.

Every car title loan has an annual percentage rate of up to 360%, however, if the loan is short term, this interest rate does not compute to be very high. While the car title loan can be paid off early with no penalty, the vehicle can be repossessed with one missed payment.

Unfortunately, many borrowers are losing their transportation because of this. But most times, people are losing their cars because they did not understand the loan terms to begin with or were irresponsible and could not make the payments.

This "Secured lending" is supposed to be cheaper for borrowers than unsecured lending because the lender can look to collateral in the event of default.That security means that it is a kind of lending that is in a vastly different category than payday loans - and should not be compared to it.

The car title lenders have avoided interest rate limitations by structuring the debt as open-ended credit, like credit cards. Open-end credit was deregulated because federal law let out-of-state card issuers export their no-cap law.

The legislature has never decided that secured, small loans should be deregulated. Most secure title loans are charging a much higher interest rate than unsecured credit cards.

Credit cards are unsecured, and therefore more risky than secured loans. Despite the greater risk, the current average interest rate charged by credit card companies is 12.5% .

Yet car title loans which are secured by cars which are owned free and clear by the title loan borrowers, are being charged rates that are 29 times the rate being charged on credit cards.

Due to astronomical annual percentage rates and because of the high repossession rate, the first payment on these loans is due a scant 15 days after borrowing the money.

Failure to make the first payment of your car title loan, or any one payment thereafter results in repossession. While no data is currently available on repossessions of cars, at one auction house, over 150 vehicles have been sold after being repossessed.

There is also the loss of equity. For example, for many people their car is their most valuable asset. Car title loans put this asset at risk and Iowans are losing all of their equity to the astronomical interest rates.

For the unfortunate clients who lose their car to repossession any excess equity they may have built is eaten by the repossession costs and interest rate charges.

The "financial emergency" that necessitated the desperate car title loan for these consumers is rarely as short-lived as the loan terms, so the interest quickly mounts as paying the loan off with a balloon payment is commonly impossible.

If you are not sure that a title loan is your best option, explore some other loan options. There are payday loans, installment loans and many others. Sometimes a title loan is your best and only option.

At least there is a service out there that can get you money quickly when you need it. The best advice is to really understand your need, your options and figure out what is best for you. A good loan officer will look at all your circumstances and help you determine what kind of loan works best.

by: Jack Landry
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Be Wise When Availing An Auto Title Loan