Why You Should Avoid Car Title Loans Unless It Is Your Absolute Last Resort

What is a car title loan?

A car title loan is usually a short term loan that a borrower takes against the value of a vehicle that they own. A vehicle must be 100% owned for a car title loan, and you must provide the car title document as proof of ownership to qualify for a loan. Car title loan lenders generally rely on people who need cash very quickly.

Are they a good idea?

Car title loans should be viewed only as a last resort because a car title loan is arguably the most expensive credit available in America today. Consider that the cost of borrowing money through a car title loan can be as high as an APR of 300% (and if not that high it is usually at least 3 digits). In comparison even the most expensive credit card APR will run at 25%. APR is the annual percentage rate that you pay for the credit that you have with your lender. The interest rate that you are paying as well as their administrative costs are covered under the APR.

How does a car title loan work?

If you have no other option but to take a car title loan, your lender will put a lien on your vehicle until you loan or debt is paid. If you sell your car when there is a lien on it, the lender will be repaid your debt before you receive the balance of the amount the car sells for. If you are unable to make you car title loan payments your lender can repossess your vehicle - so timely payment of the loan is a must.

Why do people take car title loans?

Car title loans are the quickest way to take a loan in America today. Since you are putting your car up as security or collateral, no credit checks are required. It is a speedy if very expensive way of taking a short-term loan.

Apart from the very high-cost of these loans are there any other downsides I should be aware of?

Really unscrupulous lenders may ask you to purchase add-ons at the time you take your loan. The kind of add-on that they insist you purchase are products like roadside assistance. The ‘cost’ of these add-on products are usually added to the total loan that a borrower will take and can add a crazy amount to the loan that needs to be repaid. If you are being forced to take an add-on product we would strongly suggest you find an alternate lender. Though car title loans are available for periods of up to 3 years, a loan of this kind should not be considered for anything longer than 2 weeks to a month.