Are title loans a way to get a loan quickly? These loans can be appealing due to their speedy processing times, which means you can earn money fast. However, you should be cautious about taking out a loan for a title — they can have high interest rates, which can make them costly.
A car title loan works in the same way as a payday loan. It’s a loan for a brief period, typically 30 days. You give the lender your car title in exchange for the loan.
The appeal of title loans is that they don’t require credit checks, take only 15 to 45 minutes to apply, and you can drive your car as usual. Title loans can be a problem for borrowers.
You must have equity in your vehicle to qualify for a title loan. Lenders often require that the car be yours free and clear. This means you don’t owe any outstanding loans.
The amount of your car’s value can be borrowed between 25% and 50%. The FTC estimates that the average loan amount is between $100 and $5,500. However, some lenders will allow you to borrow as much as $10,000.
After you have been approved for a loan, you will give the lender the title of your car. While you can drive your vehicle, as usual, lenders may require that you install a GPS device to track your vehicle. Sometimes, they may also take a photo of your keys. These two tactics can be used to help lenders repossess your car if you default on the loan.
The typical loan term is between 15 and 30 calendar days. However, they can go up to one year.
Can be a great option if you have a short-term need for a loan, but they also come with serious drawbacks.
Title loans are expensive. They typically come with an APR of 300% or higher. This amounts to an average of 25% monthly interest costs. If you borrowed $1,000 at a rate of $250 per month, that’s referred to as a monthly interest charge; then you would have to repay $1250 after 30 days. This figure does not include any fees you might need to pay.
These short-term loans can be expensive, but the problem is worse.
Lenders may offer to renew the loan or roll it over in to a new loan if you cannot pay the total amount. You will be charged additional interest and fees for the new loan.
Let’s suppose you borrowed $1,000 and paid a 25% fee. However, you would only be able to pay $250 back after 30 days instead of the total $1,250. Your lender may offer you a rollover loan. The $1,000 you owe will be rolled into a new loan that has additional interest and fees.
If you assume the same interest rate, your next 30 days will see you owing $1,250. You will pay $500 to borrow $1,000 for 60-days if you repay the loan in full. This does not include any fees.
Borrowers pay on average more interest and fees than they borrow. According to a 2015 Pew Charitable Trusts report, the average title loan is $1,000, and the average cost per customer per annum is $1,200.
Borrowers who cannot afford the entire loan amount may face additional difficulties as monthly costs continue to mount.
You risk losing your vehicle if you are unable to pay your loan payments on time. According to the Consumer Finance Protection Bureau, one in five title loans ends with the car being repossessed for those who roll over.
Even if you have been making partial payments, the lender can repossess your vehicle without paying as per your loan agreement.
While title loans can be tempting for quick cash access, there are other options that you should consider.
While title loans can provide quick access to cash, they can also cause serious problems for borrowers. An average borrower will have to pay more fees than they borrowed. 20% of borrowers can have their car repossessed because they didn’t pay the required amount. Consider other options before you apply for a car title loan.