Over 270 million people own a car in the United States. Combine that with the fact that the average person has less than $1000.00 in savings and it becomes clear as to why the car title loan industry exists. For the uninitiated, car title loans are financial products that allow people to borrow against the value of their car. In theory, a person would bring their vehicle’s papers into a lender, that lender would allow them to borrow an amount of money that’s slightly less than their vehicle’s value and the borrower would pay back the money, plus interest, per their loan’s stipulations.
Unfortunately, car loans are more complicated than they appear. To help you better understand what you’re getting yourself into, our team has outlined five things that you need to know before taking one on.
1. You Have to Own a Car to Take out a Car Title Loan
In order to take out a car title loan, you need to own a car. That’s because you can only borrow against the value of your car if it’s yours.
There are some lenders that will allow you to borrow against a portion of your equity in a vehicle if you don’t outright own it. For example, if you were financing a $20,000 car and had paid off $10,000 of that amount, a lender might award you a $10,000 loan or less.
2. Depending on Where You Live, Car Title Loans May Not Be Available
Many states disallow car title loans for reasons that we’ll make clear in our next point. If you’re not sure whether or not your state allows you to borrow against the value of your car, you can check this resource to find out.
3. Interest Rates and Fees Are High
Car title loans are usually leveraged by people that don’t qualify for more favorable loan products. Given that desperation, lenders take advantage of the situation by charging egregious interest rates and fees.
It’s these predatory practices that have lead to car title loan bans in about half of the United States.
4. You Could Lose Your Car
Given the high-interest rates of car title loans and borrower’s financial desperation, many find themselves unable to pay back their loans and consequently, lose their vehicle to their lender. If losing your car would present a serious lifestyle hardship to you, it’s best to leverage this loan only as a last resort.
5. There Are Other Ways
Whether it’s borrowing money from family members, looking into fair and flexible loans through your local credit union or creating a savings plan, there may be other ways to get your hands on the money that you need without taking on a car title loan.
Review your options before deciding to make sure that you’re making the best move for your unique financial situation.
Think Carefully Before Taking on a Car Title Loan
A car title loan can be a helpful means of bridging today’s financial gaps to get to a more secure tomorrow. These loans can also prove to be catastrophic lending products that hurt more than they help.
Do your diligence before signing onto this type of loan and feel free to browse more of the content on our blog if you’d like additional information on more subjects related to cars, financing and everything in between.