Consumer Car Buying Advice Blog

With the economy in a swoon and many people finding it harder to pay those bills between paychecks, this might seem to be a good time to look at borrowing the money needed by applying for a car title loan. But in most cases, this type of borrowing could get you into further trouble.

Consumers need to know the truth

Here at Auto Credit Express, we feel that an informed consumer is our best customer. We specialize in bad credit car loans through our nationwide network of retail automotive professionals. On our web site, you will find information that describes the loan process – including subprime car loans - 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 is a Car Title Loan?

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. 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, and the term of the loan is generally 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). Most of these lenders also charge 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 take a look at a typical title loan. In this scenario, the amount of the loan is $500. For collateral, 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, at the end of 30 days, you’re unable to pay off the entire amount of the loan, the lender will allow you to roll over the loan for another 30 days, provided you pay them the interest due. Rolling over the loan happens quite often with these types of loans and most states (these loans are regulated by the states, not the federal government) will allow this type of rollover to occur at least four times during the life of the loan.

What will this loan really 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:

1.    $15.00 origination fee plus
2.    $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

Most consumer groups (as well as anyone else in their right mind) would consider this type of lending to be predatory. In addition to the high interest rates and fees that you pay, you are also putting your personal property at risk. You could easily have to surrender a car that is worth many times the amount of the loan if you default. So, before you sign on the dotted line, think carefully about signing any document that could cost you your only means of transportation.

For more information on bad credit car loans and rebuilding your credit, visit our web site at www.autocreditexpress.com.

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