Before applying for a auto title loan, or any loan for that matter, one should take a moment to consider whether they will be able to afford it in the long run or not. Some people may plan to hurriedly take on a car title loan without doing any sort of planning on how to pay it back. These people can find themselves in an even worse condition than before they got the auto title loan. This is because if you are not able to pay back the car title loan, the lender will claim possession of your car, making it difficult for you to commute easily and do your daily chores.
Why go for a car title loan in the first place?
Most people resort to auto title loans in case of an emergency, as car title loans are very easy to obtain. People who have a bad credit history will also turn towards auto title loans as getting a loan from a bank or other traditional means may be next to impossible for them due to strict lending policies.
In a car title loan, the lender offers cash in return of you signing over the title of your paid-for-car to secure the loan. There is minimal income verification and no credit check when signing a car title loan, making it extremely easy for anyone owning a car to get one.
Issues with auto title loans
Although the whole process seems pretty straightforward, borrowing from auto title lenders can lead to a repossession of your car and a whole lot of financial trouble. This is the main reason why car title loans can turn out to be a bad idea for some people.
The second biggest issue with auto title loans is interest rates. When compared to credit card interest rates, auto title loan interest rates are soaring high. This is because car title lenders work around usury laws and are able to charge triple digit annual percentage rates (APRs). These exorbitant percentage rates can go as high as 250%, which is more than 10 times the interest rates charged by credit card companies.
If you are habitually bad with money, and lack the knowledge to plan a schedule to save money and pay back your loans, then car title loans are not for you. This is because if you are unable to repay the loan, the loan company has the legal right to possess your car if stated in the agreement you signed with the company.
These issues have led car title loans to be classified into the “predatory lending” category by many people. If you want to responsibly use a title loan, you must have a plan to pay it back as soon as possible, or pay the interest and roll the title loan over for another term. This way you can return back to your title loan lender as a return customer. Have a realistic repayment plan and you will have a quality title loan lender on your side.