Steering Clear of Title Loans (1 of 3): Three Must-Know Facts

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Title Loans are a real clunker of a deal. Here are the facts you should know before risking your ride.

If you’ve driven through any dicey area, you’ve seen the Car Title Lender’s storefronts. These are the shops offering “Fast Cash” and “Kwik Money Today!” If you’re in a jam, it can seem appealing to walk into a store, sign some papers, and walk out with money in your pocket. But what’s the real cost?

Let’s break it down with the 3 Must-Know Facts about Car Title Loans.

Fact 1: They’re predatory

What is a Car Title loan in the first place? It works likes this: A borrower takes out a short term, small dollar loan from a title lender in exchange for signing over the title to their car (or boat, or motorcycle, or hot air balloon, any vehicle with value). The loan itself comes with an extremely high-interest rate (usually around 300% APR!).1

With interest rates like that, the loans are designed to be difficult to repay. That’s called predatory lending. It means that the lender has effectively sold you on a loan you can’t afford, trapping borrowers in debt cycles, and then ultimately being able to take (or “repossess”) the borrower’s car. These lenders aren’t out to give borrowers a financial boost, they’re out to boost your car!

Fact 2: They short you on the value of your vehicle

In a Car Title Loan transaction, you are using your vehicle as collateral. Essentially, you’re securing the loan for the lender by empowering them to take your car if you fail to repay (which is what they want, of course). The lender says the loan is based on the value of your car, but that’s almost never the case. A typical car title loan is for only 40-60% of the value of your vehicle.2

So now the borrower isn’t getting a loan for the full value of their car, but rather a small dollar loan attached to a grossly inflated interest rate and set of additional fees. Read more in Title Loans: Risk, Rollover, and Repo.

Fact 3: Those short terms and high interest rates are by design

The average Car Title Loan is for a period of only 30 days. When you’re in a financial emergency, it can seem like a good short term solution, but the truth is that the consequences are often far worse than if you had skipped the loan in the first place.

Yes, interest rates are high to begin with, but many title lenders charge you a flat fee just to use their “service”. This destructive combination of short terms, high interest, and arbitrary fees, means that you’re very likely to pay the value of the loan many times over, lose your car, or both.3 Read more in 5 Need-to-Know About Title Loans

Car Title Loans are dangerous and predatory but the good news is that they are totally avoidable. Keep your finances (and car) safe by driving past these dangerous, predatory lenders.

A safe alternative to Car Title Loans are personal installment loans from OppLoans. We offer fixed interest loans that range from $1,000-$4,000 and have repayment periods of 6-36 months. We offer better personal loans and top notch customer service – our customers rate us 5 out of 5 stars. Click below to get started today.

References

1. “5 Shocking Facts About Car Title Loans” Cheatsheet.com. https://www.cheatsheet.com/personal-finance/5-shocking-facts-about-car-title-loans.html/?a=viewall Accessed 3.1.2016
2. “Be Aware of a Cash Loan for Your Car Title: 5 Facts for Avoiding a Bad Loan.” Carsdirect.com. https://www.carsdirect.com/auto-loans/be-aware-of-a-cash-loan-for-your-car-title-5-facts-for-avoiding-a-bad-loan Accessed 3.1.16
3. “Car Title Loans” About.com https://banking.about.com/od/loans/a/cartitleloans.htm Accessed 5.6.2016

Blog Series: Steering Clear of Title Loans
Part 1: Three Must-Know Facts
Part 2: Don’t Risk Your Ride
Part 3: What to do if You’re Already Trapped