What Is A Title Loan?
October 17, 2008
A title loan works much in the same way as a payday loan. Used primarily by sub prime borrowers these loans are seen as a last resort; when there are just no other options. Many consumer advocacy groups keep close watch over title loan lenders since many of the borrowers tend to be in a desperate situation.
The title loan is a type of secured loan; where a payday loan is unsecured yet both types are used as a quick fix often to pay immediate bills or to pay for living expenses. Car owners are offered up to 50% of their car’s resale value though this number is often significantly less. The APR or annual percentage rate, is generally very high often in the triple digits and can reach up to 300%. This fact makes title loans extremely dangerous.
The penalty for failure to repay the loan is the loss of the car. Since so many sub prime borrowers utilize title loans many of them have only one car and loosing that car is a devastating blow to an already volatile situation. What’s more, these title lenders can even require possession of the car during the duration of the loan. Others have installed a GPS tracker which makes repossession easier. A new device used by lenders is an instrument that shuts the ignition off should the borrower fail to repay the amount. Should a borrower go through a title lender it is extremely important to find out what method the lender is going to use to claim possession of the car if the loan is not paid in full.
Many of these title lenders will even require the borrower to make payments of the interest rates throughout the length of the loan. The duration of the loan is generally one month though many lenders will allow the borrower to roll the loan over to a new one in case the initial loan can not be repaid. This is really where much of the problem regarding these types of loan comes into play. Like their payday loan counterparts, title loans trap many borrowers into a very vicious cycle that can be very hard to escape.
Unable to repay the initial loan, lenders roll it over into a new loan. Now with two loans and a very high interest rate; repayment can be impossible resulting in the loss of the vehicle.
Loosing that car which is probably the only transportation to and from work the possibility of missing payment on bills, credit cards, and even mortgage payments is now all to real. Without that income title loan borrowers will be faced with mounting debt. Quick fix loans such as what title loans offer are not seen as a great idea or even a good idea for borrowers.
Sure, times are tough and desperation may be setting in but why risk one of the most important items in your life; that car? Instead try selling the car in favour of a used model and use the profit to meet any financial obligations.
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