Department | Auto Refinancing

Car Title Loans Might Be a Bad Idea

Have you heard of car title loans? If you’re hurting for cash, then a car title loan might seem like an appealing option. These loans allow you to get cash from a bank that you will have to repay within 30 days. You will also sign over the title of your car in order to secure the loan. Though this may sound like an easy way to get fast cash, it might be more trouble than it is worth. The following are some of the reasons why a car title loan might be a bad idea.

Large Interest Rates

The interest rates on car title loans are extremely high. They even rival the interest rates of payday loans, which many consider a form of predatory lending. You could see triple-digit interest rates on car title loans, which is absurd. There are even laws in the works in many states to prohibit such usurious lending. As you can see, car title loans make credit card interest rates look like a walk in the park. By law, your lender must inform you of your APR, or your interest rate expressed on an annual basis. Before you take out any loan, you should know this information.

Get Repossessed

Thirty days might sound like a lot of time to pay back your car title loan, but it’s really not. In fact, a lot of people default on car title loans. Most car title loan borrowers have low incomes, which lead to trouble when combined with unfairly high interest rates. You will have already signed over the title to your car when you got the loan, so your lender can easily repossess the vehicle. This will not only leave you having to take the bus, but you also still have to repay the loan. Repossession is a very serious thing, and when you sign over the title to your vehicle, you are in danger of it happening to you.

The Alternatives

Recognizing the trouble these title loans cause consumers, credit unions have begun offering their own alternative loans. These loans will have lower rates and a 31-day repayment period. You can even set up a direct deposit arrangement to make it more convenient. You could also check into cash advances on your credit cards to see how competitive the rates are. Alternatively, you might also ask your employer for an advance on your paycheck. If you’re really in a tight spot, consider borrowing money from family or friends.