If you own your vehicle outright but are in need of some cash to cover short-term expenses, you may have considered getting a car title loan.
Getting a car title loan seems like a good solution in the short term, but most consumers find themselves regretting using a car title loan.
Most financial experts strongly advise against taking out a car title loan.
We will discuss the truth behind car title loans and the slippery slope associated with them.
How do Car Title Loans Work?
A car title lender will issue you a secured loan that uses the vehicle title as collateral.
A car title loan is a secured loan because you are offering a physical item as collateral.
If you are unable to pay off the car title loan in full, the lender has the right to repossess your car.
Most lenders offer these loans in small amounts, usually between $100 and $1,000.
These loans are typically paid back in 30 days as a single payment.
Some consumers can also pay in installments ranging from three to six months.
Studies conducted by the CFB have shown that nearly 20% of all car title loan borrowers get their car repossessed after receiving a car title loan.
Some consumers are unable to pay off their loan in a single payment, and thus become trapped in a vicious cycle of debt that can last for years.
Before You Get a Car Title Loan
First and foremost, it is essential to step back and examine all your options besides a car title loan.
Besides interest rates of 300% APR and above, there are other ways car title loans can cost you more money.
Most auto title lenders will require that you pay some sort of upfront fees and additional add-ons.
Some lenders may try to sell you on credit reports, roadside assistance, and more.
It’s best to avoid adding any extra expenses that could bring you into a vicious and unforgiving cycle of debt.
Car title loans also carry more consequences.
If the car is stolen or totaled, you will not be able to get financing for a new car unless your title loan has been paid off in full.
Also, if the car is damaged in an accident, chances are the check will be mailed to the car title loan company, since they are the lienholder on the car.
Another option to a car title loan is getting a personal loan through your bank or credit union.
This will allow you to find a loan at a much lower interest rate.
Personal loans are also unsecured, meaning that a lender cannot repossess an item to pay for your loan.
All in all, a car title loan is a risky bet. Although it can be a quick way to get $1,000 in cash, we highly suggest exploring almost any other option first. If you are looking to get a personal loan, CrediReady can help.
Our nationwide network of trusted and verified lenders work with borrowers in all credit situations. Take a moment to fill out our free no-obligation loan inquiry form and get the money you need today!