Should You Take Out a Car Title Loan?
When it comes to borrowing money, it is always first wise to take the time to consider how great or immediate the need may be. All loans charge you interest, so if you have taken out a number of loans already or you’re finding money tight, first consider all the options before potentially putting yourself at financial risk.
Comparing several auto title lenders in order to get the very best terms on a car title loan will save you a lot of potential worry, stress, and financial duress.
Auto title loans specifically for those with bad credit should be chosen only when few traditional lending options are open to you. For those with good credit, it is often simpler to just apply for a personal loan because they do not require any collateral. This is, however, not an option open to everyone.
Car title loans certainly have their place. Let’s take a look at why you might decide to choose one.
Pros of Car Title Loans
The application and approval processes for car title loans are very fast; sometimes in less than 24 hours, you can have the money in your bank account. The value of your vehicle determines the amount of money you can apply for, though in many cases lenders will cap the loan amount to 50% of the vehicle’s value.
Anyone Can Qualify
Car title loan companies rarely, if ever run credit checks, thereby offering any vehicle owner capable of receiving a loan. Because your car is the collateral you will be able to secure a loan.
You Don’t Have to Surrender Your Vehicle
Though you must hand over the title to your vehicle, until the loan is paid back in full, the vehicle remains in your possession. However, in some cases, the lender may request that you purchase additional insurance if they are not satisfied with the policy that you currently have.
Cons of Car Title Loans
High Interest Rates and Fees
The biggest issue with it comes to car title loans are the interest rates, making it wise to shop around for the lowest rate possible.
Federal law mandates that lenders must disclose the annual interest rate percentage. A monthly rate of 25% is equivalent to 300% APR – much higher than traditional loan options.
Make sure to ask for not only the monthly percentage rate but also the yearly because loan lenders can charge triple-digit annual percentages. Due to some lenders charging high rates a number of states have passed strict laws to prohibit this.
Make sure when selecting a lender that you are aware of the interest rates, fees and the terms of the loan.
Interest-Only and Fee Payments
Along with high interest rates, a number of fees and potential fees are also included when applying for a car title loan, such as lien fees, processing fees, late fees, organization fees, and document fees. Roadside assistant programs are also sometimes included and sometimes mandatory, depending on the lender. All of these extra fees are legal except the repossession fee. By law, lenders are not allowed to charge a fee to repossess automobiles. However, some still try.
Lenders also allow borrowers the option of interest-only payments that are for a long period of time. These balloon payments result in the borrower, during each month, paying only the interest on the loan, however at the end of the term they still owe the full amount of the original loan.
Potential Loss of Vehicle
The vehicle is repossessed if the loan is defaulted upon. As the amount of the title loan is not the full value of the vehicle, by re-selling the repossessed vehicle the lender can get much more value than if the loan was paid back in full.
Some borrowers are not able to pay back the loan within the 30-day time period. Borrowers that find themselves in this situation may be allowed by the lender to “roll over” – or extend – the length of the loan by creating a new loan. This will incur a “roll over” fee.
If you’ve determined that a car title loan is the way to go, ensure you choose a reputable company and educate yourself on all of the terms and conditions of the loan.