Car Title Loans - Why you shouldn’t get one!
by Steve Cypher on Tuesday, January 15th, 2008Here at Auto Credit Express, we feel that an informed consumer is our best customer. On our web site, you will find information that describes the loan process as well as such valuable tools as an auto loan calculator. All these tools will help you make an informed decision. What I would like to discuss today is something that doesn’t appear on our site because, quite frankly, this type of loan should be avoided at all costs.
What are Car Title Loans?
Car title loans are loans that are secured by the title to your vehicle. They are meant to appeal to people who need cash quickly and have no other way to get cash quickly. In order to qualify for this type of loan, you need a car that has a clear title (one that is paid off and is not being financed). Typical loan amounts range from $175 to $2,500, while the duration of the loan is usually 30 days. Interest rates are loosely regulated by the states for these amounts and average 30% per month - and no, that was not a typo. In addition, the loan company usually charges an origination fee. Many of the storefront locations these companies operate out of also offer check cashing services and, in some cases, pawn loans.
A Typical Loan Scenario
Let’s say you take out a $500 car title loan. You give the loan company your free and clear car title as well as an extra set of keys to the car (if you default on the loan, the car is theirs – regardless of how much it’s worth). You pay them the $15 origination fee and sign a document that says you will pay them $150 in interest (30%) plus the $500 in principal in 30 days. If you don’t have the entire amount in 30 days, the loan company will allow you to roll over the loan for another 30 days, provided you pay them the interest amount. Most states will allow this type of rollover to occur at least four times.
What is the true cost?
Well, let’s take a look. If you ended up rolling over the loan twice, for a total of 3 months, it would look like this:
- $15.00 origination fee plus
- $450.00 interest charges
This amounts to a total of $465.00 in interest and charges to borrow $500.00. This equates to an annual interest of 91%. That’s right. You just paid 91% in interest charges!
The Bottom Line
This type of lending is (not to put too fine a point on it) predatory and should be avoided by consumers at all costs. Think carefully about signing any document that could cost you high interest fees as well as the loss of your only means of transportation.
