What is the process of title loans?
A car title loan might be the answer if you have a car and need cash.
Are title loans really a way to get a loan quickly? These loans can be appealing due to their speedy processing times, which means you can get 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.
GAD title loans 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.
Title loans: how do they work?
You must have equity in your vehicle to qualify for a title loan. Lenders often require that the car be your own, so you don’t owe any debts.
What is the maximum amount you can borrow on a title loan
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 car as normal, lenders may require that you install a GPS device in order 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 vehicle 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.
Title loans: Problems
Title loans are a great option if you have a short-term need for a loan but they also come with serious drawbacks.
Title loans can be very expensive
Title loans are expensive. They typically come with an APR of 300% or higher. This amounts to an average 25% monthly interest rate. If you borrowed $1,000 at a rate of $250 per month, that’s also known as a monthly charge, then you would have to repay $1.250 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.
Title loans could lead to a cycle of debt
Lenders may offer to renew the loan or to roll over the loan to a new one if you are unable to pay the full 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, after 30 days you could only repay $250 instead of the full $1,250. Your lender may offer you a rollover loan. The $1,000 you owe will be rolled into a new loan with additional fees and interest.
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 fee per customer per annum is $1,200.
Borrowers who are unable to afford the full loan amount may face additional difficulties as monthly costs continue to mount.
Your car could be repossessed
You risk losing your vehicle if you are unable to pay your loan payments on time. According to the Consumer Finance Protection Bureau, 1 in 5 title loans ends with the car being taken away by borrowers who roll over.
Even if you have been making partial payments, the lender can repossess your vehicle if it isn’t paying as per your loan agreement.
Alternatives for title loans
While title loans can be tempting for quick cash access, there are other options that you should consider.
- Ask your creditors for an extension. Contact your creditors if you are behind in your bills. If you act in good faith, and the situation is temporary, creditors may grant an extension for a brief time.
- Negotiate your debt. Contact your credit card companies to find a solution. You may be able to negotiate a settlement in some cases.
- Get a credit card. A credit card is a better option than taking out a loan to pay for your bills. Credit cards have lower interest rates than title loans. For most credit cards, interest rates are lower than title loans if you pay your full monthly balance on time.
- Apply to an unsecured personal loan. Unsecured personal loans are not secured like title loans. These loans also have lower interest rates than traditional title loans.
- Get your tax refund. Don’t wait to file if you have taken out a title loan and believe you may be eligible for a refund. According to a Pew Charitable Trusts study, 21% of title loan borrowers received a tax refund when they paid off their loan. The IRS typically issues refunds within 21 days. These are some ways to stay out of debt while you wait for your tax refund.
- Borrow money from friends and family. Although borrowing money from family and friends can be difficult, it is worth it in order to avoid taking out or rolling over a title loan. Pew found that 19% of borrowers borrowed money from family and friends to pay off their title loan debts.
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 are repossessed because they did not pay their loan. Consider other options before you apply for a car title loan.