Consumer Car Buying Advice Blog

Unlike auto loans for bad credit taking out a car title loan could cost you more than just a high interest rate

Getting ready for better credit

If you’re reading this, it could mean that you belong to a growing number of consumers that, because of the current economy, have bad credit. If you are looking for a loan, in many cases bad credit web sites such as www.autocreditexpress.com can help you. By filling out an online car loans with bad credit loan application, you may have a chance to begin a new chapter in your financial life by getting approved for a second chance auto loan at one of our affiliate dealers. With timely payments and by paying the rest of your obligations on time, you will then be able to raise your credit scores and reestablish good auto credit.

But you should know from the start that the process can be risky if you don’t know what you’re doing. For example, choosing a vehicle that’s too expensive can often stretch the budgets of many credit-challenged consumers and, in some cases, result in repossession. Once this happens, the only remaining choice for most buyers is a tote the note car dealer.

Looking for cash in all the wrong places

But just as there are good ways and a bad ways to re-establish your credit auto, there are also good ways and bad ways to come up with that extra cash you might need in order to cover unexpected expenses.

In this instance, we’re talking about a type of loan that doesn’t appear on our web site because, when it comes right down to it, you should think long and hard before taking out this type of loan.

Car title loans

Unlike car loans with bad credit that help you finance a vehicle, car title loans are loans that are secured by the title to your vehicle. These loans are meant to appeal to people who need cash quickly. They differ from bad credit auto loans because, in order to qualify for this type of loan, you need a vehicle that has a clear title – in other words, you car has to be paid off before you can take out this kind of loan.

Typical car title loan dollar amounts are much smaller than what you might qualify for with auto loans for bad credit and range from $175 to $2,500. The length of these loans is generally 30 days and, not surprisingly, interest rate caps (due to the smaller loan amounts), and is not as strictly regulated as bad credit auto loans. In many states, interest rates average 30% per month – which works out to an annual percentage rate of 360%.

Most of these lenders will also charge an origination fee and the lenders, themselves, operate out of storefront locations which also offer such services as check cashing services and even, in some cases, pawn loans.

How a typical title loan works

Here is a typical title loan: Take, for example, a title loan in the amount of $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 will belong to the lender – regardless of how much it’s worth). You’ll pay them a $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 (you usually can’t make a partial payment), the lender will allow you to roll over the loan for another 30 days, provided you pay them the interest due. Rolling over a loan occurs quite often with these types of loans and most states (states, not the federal government, regulate these types of loans) will allow this type of rollover to occur at least four times during the life of the loan.

The true cost

If you ended up rolling over the loan twice, for a total of 3 months, your actual costs for a $500 title loan would look like this:

1.    $15.00 origination fee (a one time charge)
2.    $450.00 in interest charges ($150 times 3 months)

This amounts to a total of $465.00 in interest and charges to borrow $500.00, which equates to an annual interest rate (APR) of 91%. To put it in perspective, this amounts to an interest rate that is many times higher than any bad credit car loan.

As we see it

Most consumer groups (as well as anyone 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. If you default on the loan, you could easily have to surrender a car that is worth many times the amount of the loan. What is even worse is that this might even mean losing your only means of transportation to and from your job

So take our advice and think very carefully before you take out this type of loan. Even the potential embarrassment of having to borrow money from friends and relatives far outweighs the potential risk of losing your only means of personal transportation.

At Auto Credit Express we have helped thousands of people with bad credit buy cars and reestablish their credit at the same time through our nationwide network of affiliate dealers specializes in bad credit car loans. Our web site, www.autocreditexpress.com, 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.

So why not begin the process right now by filling out our secure online bad credit car loan application to see what we can do for you.

Tags: auto credit, Bad Credit, car title loan, credit, credit auto, credit score, repossession, title loan, tote the note

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