Millions of financially strapped consumers turn to auto title loans every year for help taking care of emergency expenses, unexpected costs and making ends meet. The payday loan lending industry has paved the way for short-term loans that provide quick cash to people with bad credit or no credit at all.
While payday loans and cash advances offer amounts ranging from $100-$1,000, auto title loans give the consumer the option to borrow as much as $5,000 to $10,000. That’s a great deal of money when you only have one to three months to pay it back. Buyers beware: when thinking about taking out a high-risk auto title loan, consider these financial pitfalls before you sign on the dotted line:
*Having a lien placed on your vehicle- Once you have signed your loan papers, the lender will require that you hand over the “pink slip” or title to the automobile. They will then place a lien on your car until you have repaid your loan in full. In order to get the lien removed, you the borrower must prove to the DMV that you have paid off your loan balance.
*These are short term loans! – Most auto title lenders want to be paid back within 30 days. Some grant you up to 60 days. Nevertheless, if you have not paid within the specified timeline, your loan will “roll over” and you will be charged high interest rates and fees. This can cause a vicious payment cycle where you find yourself only able to pay the minimum payment. This will cause your loan balance to increase quickly!
*Read the fine print about interest rates- Some lenders will entice you with low interest rates only to find out that the actual overall monthly interest rate is in the hundreds! Borrowers who are feeling desperate and want to obtain their cash quickly may not take the time to ask what rate they will be getting. This is where reading the fine print on your loan documents comes in handy. Reputable auto title loan lenders will have calculators and sample payment plans on their website so you can get an idea of how much you will pay to borrow.
*Your car may be repossessed- This is about as bad as it gets. If you are late or default on your loan payments, the lender has the right to repossess your car (remember when you gave them the title at your loan signing?). In most cases they will take the car to an auction, sell it, and recoup their costs. This will happen quickly as they aren’t going to want to hang onto the car. There is no turning back when this happens. On top of losing your automobile, the lender may file a lawsuit if there is a difference in the amount you borrowed and what they profited from your car at the auction.
Auto title loans are not for everyone. They work for those consumers who are in the position to pay back what they borrowed when expected but for those who can’t? It’s best to stay away from borrowing against your car and find another way to get the funds you need.