Car title loans may seem like the perfect solution in those moments when cash is needed quickly. While they can be useful, car title loans can also initiate a whole host of problems for those who aren’t able to repay them on time. They are also typically high interest, short-term loans, which can make the repayment process even more difficult for borrowers.
Why Car Title Loans are so tempting
There are many reasons why people turn to car title loans when they find themselves in an immediate financial pickle. First off, there are typically no credit checks attached to a car title loan. That means that folks who normally wouldn’t qualify for a loan from a bank can still get a title loan as long as they own a vehicle free and clear. Also, people often turn to these financial resources because the process of actually getting one’s money is very fast.
How Title Loans Work
Although the details may vary by lender, the typical car title loan works simply. A person who owns their vehicle will take both the title and the car, boat, truck, or motorcycle to a car title loan lender’s business. At this business, the vehicle will be evaluated for its value. The lender may agree to loan of a certain percentage of the car’s value in exchange for holding the title, an interest charge, and a short term payment arrangement.
Why Title Loans Pose a Problem
While all of the above sounds just great on the surface, there are many issues that can arise from the use of car title loans. First of all, a high interest rate, even for a short-term loan, is nothing to scoff at. Some of these loans can carry interest rates up to 33%, and are legally able to do so because they are not long-term. Also, being even just a little late in repayment could snowball quickly into a seemingly insurmountable debt.
Even more than the sheer expense of borrowing money this way is the absolute risk that the borrower could lose their vehicle. How would they then go to work, or anywhere for that matter? They would be in worse financial shape than they were when they felt the needed to take out such a loan in the first place.
If there is any way possible besides a car title loan for a person to get the money they need, they should pursue that avenue. While these loans offer fast cash without a credit check, they do so in exchange for a hefty amount of expense and risk.