Are There Risks To Title Loans?

Posted by Angel on September 5th, 2019

Vehicle title loans provide an easy way out to get quick cash when you are cash strapped or in tight financial conditions needing urgent attention. You can get between 0 and ,000 in exchange for the title of your car as collateral when you apply for a car title loan near me. Car title loan is a type of secured loan and this is why the borrower must provide the title of their car as a collateral. 

This type of loan is expensive, due to its huge fees and the Annual Percentage Rates (APR) that can be as high as 250% or more. If you are in a crunch for cash, you can consider other less expensive options like requesting for a payday alternative loan or an advance on your paycheck from a credit union. However, if these other options are not accessible, then you have to go for a car title loan regardless of its huge fees and rates. 

Types of Car Title Loans

There are two major types of car title loans, they are;

• Single Payment Loans: Single payment loans require the borrower to repay the loan in one lump sum, usually 30 days later, and it has an average of 300% APR.

• Installment Loans: This type of loan allows the borrower to make multiple payments over a period of time; usually three to six month or more. This type of loan has an average APR of 259%.

Most car title lenders do not require plenty of paperwork as they include fewer requirements, no credit checks are required, and they offer loan with consumers with all categories of credit as long as they possess the basic requirements and show that they have the capacity to repay the loan. Some even go as far not requesting for a proof of income, that’s how easy it can get to get a car title loan with some lenders. 

Why Car Title Can Be Risky

Certain people refer to car title loans as “payday loans’ bully brother”. The interest for car title loans are lower than that of payday loans, which can have an average Annual Percentage Rates of over 1,000%. What makes car title loans more expensive is their cyclical borrowing and fees that may be involved. 

If you can meet up payment or you fail to pay, you risk losing your car because your lender has the right to repossess your car. According to the Consumer Financial Protection Bureau, 20% of customers who got a short-term, single payment vehicle title loan do have their cars repossessed.

Vehicle title loans can also lead to a cycle of debt because most single-payment loan borrowers usually end up renewing their car title loans multiple times which means they will incur more fees each time they do so. The study according to CFBP shows that only about 12% of single payment borrowers end up paying the loan without renewing and one-third of the remaining borrowers renewed their loans up to seven times or even more.

Find out more from https://tfcmoussa.wixsite.com/cartitleloans/post/when-does-refinancing-a-car-loan-make-sense