Let’s be real—getting a title loan is easy. Paying it off? Well, not so much.
When you finally do get your money and you have that title loan, you may be shocked by all the fees. It is not uncommon whatsoever to be charged outrageous monthly fees by lenders. This could be up to 25% a month, which could build up very fast. And this is just to finance the loan.
Credit Karma states that if you get a 30-day car title loan for around $1,000, the fee would be $250 and you would have to pay $1,250 as well. This does not include any additional fees that you will have to pay as well.
A cycle of debt
Sometimes, many will find themselves looped in a cycle of debt when it comes to taking on a title loan. While it is unfortunate, it does happen.
If you cannot pay the fee at the end of the month, you could face a problem. Many lenders offer rollover plans, so whatever you owe will have to be paid on top of the next month’s fee. This could add up rather quickly and leave some in debt.
How do car title loans work
Car title loans always operate either online or at certain locations. Keep in mind that many states do not even allow car title loans whatsoever!
- To get a car title loan from a vendor, you need to show proof of insurance and your ID.
- For some lenders, you need to prove that you completely own the car.
- When approved by the lender, the lender will hold onto your car title as collateral once they give you the money. Most loans range from 20% to 50% of the car’s estimated value.
- Then, you will be charged a monthly fee. If you do not pay it each month, it will roll over to the next.
- Title loans go by different names in different states. For example, Georgia lenders offer title pawns while lenders in Florida use the term auto equity loans. However, make no mistake, all of these products are title loans at their core.
What are the risks
One of the biggest risks when it comes to a title loan is that your car could be repossessed. If you are unable to pay your loan at the end of the loan term, you may be at risk of losing your vehicle. If you cannot keep up with your payments the lender has the right to repossess your car.
What are some alternatives to the title loan
If looking over this title loan information is making you nervous about all the added fees, there are a variety of alternatives you can look at instead!
Use your tax refund
Let’s say you have taken out a title loan and you have a tax refund coming on the way, you better hop on filing. Many people have paid off their title loans with a tax refund. The IRS issues refunds in 21 days or less.
Use your credit card
Rather than taking out a loan, it may be considerably cheaper to pay it off using your credit card! A lot of credit cards may have lower interest rates compared to title loans. Also, if you pay everything on time each month, you may not have to pay any interest.
Some other alternatives when it comes to the loans could be asking friends and family for a loan agreement, seek assistance through non-profits, charities, and other organizations that help. You may even ask your employer for a paycheck in advance.
What happens if you pay off your loan
Many always wonder, if you pay off your car title loan, will it build your credit? The answer, unfortunately, is no.
Title loan lender does not report any payments to credit card companies so you will not have any credit built.
However, the biggest downfall is that they are just so pricey and so expensive, and you have such a short amount of time to pay the money back. As they roll over each month, if you cannot pay the monthly charge, the price will just increase, making it even harder to pay back.
Are there any positives at all
While there are so many negatives to title loans, there are a few advantages. While these may not change your mind about the title loan, it can at least spread some valuable information.
- Unlike many other types of loans, there are no lengthy or over-complicated processes when it comes to car title loans.
- They are also very easy to apply to even without the best credit car score! Lenders generally do not even check the credit card scores you may have! This means it is very easy for pretty much anyone to apply for one of these loans!
- All you have to do is show you have a reliable source of income and a car worth over the amount of the amount you are requesting, and your loan will have a great shot of being approved!
Sometimes, you can walk out of the lender’s office with cash in hand, ready to use for whatever you need! In short, title loans can make sense if you need cash for an emergency.
What is the conclusion
Overall, it is very important to do your research before taking on a title car loan. Keep in mind the short pay window and the high fees that come with it. Just make the right choice!