Consumer Car Buying Advice Blog

Getting some quick cash merely by taking out a car title loan may seem to be a good way to make ends meet but this type of loan could get bad credit consumers into big trouble in only a very short time.

Reestablishing your credit

At Auto Credit Express we’ve spent the last 20 years working with consumers who have bad credit and helping many of them raise their FICO scores and reestablish their car credit by filling out our online bad credit car loan application and financing a vehicle through our nationwide network of dealers that specialize in second chance auto loans.

One of the keys to successfully reestablishing your credit is an understanding of the many different types of loans that are available to consumers with no credit check required. And while most of these loans won’t help you rebuild your credit, some are even worse and can, in a worst case scenario, lead to the loss of a vehicle if you aren’t careful.

Title loans

Car title loans are really just a form of cash advance loans that are secured by the title to your vehicle. They are meant to appeal to people who have poor credit or bad credit that need cash quickly and are unable to get a small loan from a bank or credit union.

In order to qualify for this type of loan, you’ll 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 – meaning that it must be paid back in full within that 30 day period. Because the lender bases the maximum loan amount on the appraised value of your car, there is no credit check and, often, very little income verification.

Interest rates are loosely regulated by the states for these loan amounts (it’s no coincidence that the loan limits purposely fall below a state’s regulatory minimum just like payday loans) and average 25% per month (which works out to an annual percentage rate of 300%). Most of these lenders also charge an origination fee while many also include document fees, processing fees and lien fees. In a bid to further increase their profits, many lenders offer a roadside assistance service that can be purchased for another small fee and, in a few cases, lenders have even attempted to charge a repossession fee, which is illegal.

A typical title loan

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 and they will repossess it – regardless of how much it’s worth). You pay them a $15 origination fee, a $5 document fee, a $5 processing fee and then you proceed to sign a document that says you will pay them $125 in interest (25%) plus the $500 in principal in 30 days.

At the end of 30 days many consumers are unable to pay off the entire amount of the loan, but the lender will usually be more than happy to allow you to roll over the loan for another 30 days, provided you pay them the interest due. “Rolling over” 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.

The true cost

If it turned out that you had to “roll over” the loan twice for a total of 3 months, it might look something like this:

1. $15 origination fee
2. $5 document fee
3. $5 processing fee
4. $375 in interest charges

This amounts to a total of $400.00 in interest and charges to borrow $500.00. This equates to an annual percentage rate (APR) of 80%. To make matters worse, if you default on the loan, the lender can repossess your car and sell it and, in some states, not even have to pay you the difference between the loan balance and what the car fetched at auction (loans typically are capped at 50% or less of a vehicle’s actual value).

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.

At Auto Credit Express, our business is the bad credit car market. We have helped literally thousands of people with bad, blemished, bruised and tarnished credit buy cars and reestablish their car credit at the same time. Our nationwide network of affiliate dealers specializes in bad credit car loans. Out web site will help you determine how much car you can afford and unlike other sites, our toll free number is listed on every page, in case you have any additional questions. When you decide to buy a car, our online bad credit car loan application can be filled out in the comfort and security of your own home.

For more information, visit www.autocreditexpress.com to see what we can do for you.

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