Fact About Auto Title LoansFast Action Finance
An auto title loan is a secured loan usually based on a percentage of the car’s value; the car is used as collateral for the loan. Typically, the loan requires fees. You will need to sign over your title to the lending company until your loan is fully repaid, high fees and rates included. Such type of loan is similar in structure to a payday type loan- a loan with high rates that are usually sought out by desperate people.
Lending companies charge borrowers 30% in annual interest this kind of loan. The average interest for such loan is 25% for each month of the amount borrowed. The rates are somewhat confusing to many borrowers before the loan is granted, as lenders may refuse to discuss the rate or may show the rates as part of the miscellaneous fees. In fact, CNN reports that a car title loan isn’t regulated.
Vehicle Fees and Values
Some lenders charge you interest up front. Loan amounts usually vary depending on the value of your vehicle. A lender may also tack on fees, such as $62.50 to $181 per month for a $500 loan. Also, a lender usually requires a copy of your keys at the time of the loan. Some lenders don’t require you upfront fees; instead the fee is due at the end of your loan. This makes it hard for a borrower who is experiencing financial difficulty to repay his loan and get his vehicle back.
Inability to Pay
If you fail to repay the loan back within 30 days, the interest rate may increase. Some borrowers are forced to extend the loan repayment period another 30 days, resulting in more interest and additional fees. Auto title loans at an interest rate of 25% now double to 50%. Even if your vehicle is repossessed, the lender can sue you for the interest and fees. Thus, it is very important to keep in mind that if you borrow only a few hundred dollars and fail to pay back, you can still have your vehicle repossessed and not see any return for the profit that the company made when it sold your car.
Some describe car title loans business as “predatory.” This is due to the fact that it targets people with little money while loans are high-risk and expensive. Some places are unregulated, in which case, loans for as high as $2,500 are legally required to be repaid in full within 30 days. Several places have loopholes in the system, and lenders take full advantage.
Many sources recommend consumers to consider other options. They suggest seeking help to your community. Veterinary, food, clothing, children’s services, car, health and utility help may be available. You may try checking with local credit unions. Some banks may let you borrow a small amount of money with 12% interest paid back with 31 days with the system of direct deposit.