Car title loans offer an option for quick approval on a short-term loan, but they’re generally very costly. To get an auto title loan, you need to pledge your vehicle as collateral by handing over the title to the lender until the loan is completely repaid.
If you have no other options-for example, you need funds right away for emergency medical treatment-a title loan could make sense. But in most cases, these loans are more expensive than they’re worth, and you risk losing your car when you use one.
To borrow against your vehicle, you need to have enough equity in your car to fund a loan. In many cases, you need to have paid off any other loans used to purchase the vehicle, but some lenders allow you to borrow if you’re still paying off a standard auto purchase loan. On average, these loans can range from $100 to $5,500.
The amount you can borrow is based on the value of your car or the equity you have in the vehicle. The greater the value, the more cash you can receive. But don’t expect to squeeze the car’s full value out of a title loan. Lenders want to make it easy on themselves to get their money back, so they only lend what they can quickly and easily receive if they have to repossess and sell the vehicle. Most lenders offer loans for between 25% and 50% of your car’s value. They may also install a GPS tracking device on your vehicle to prevent anybody from hiding the car instead of paying off the loan.?
While you can get auto title loans from storefront finance companies, you may be able to borrow against your vehicle through your credit union or bank too.?
Title loans are short-term loans, often due within 15 to 30 days. That means you have to quickly come up with the funds for complete repayment, known as a balloon payment, and that’s rarely as easy as you’d hope. In some cases, you can extend repayment by “rolling over” the loan.
Instead of paying the loan off, you can get a brand new 30-day loan. However, rolling over becomes an extremely expensive way to borrow-you have to pay new loan fees every time you do it. State laws sometimes limit whether rolling over is an option.?
You may see that your lender charges 25% interest for one payday loans Dickson TN month, which may not sound that bad. However, if you were to carry that loan for a full year, the annual percentage rate (APR) of interest equates to about 300%.
Costs are high with title loans. Lenders generally charge higher interest rates than you’d pay on credit cards. State laws often limit interest rates, but those limits are still quite high. What’s more, you typically pay fees to get a title loan, and those fees increase your cost of borrowing. Even if the fee isn’t called “interest,” you’re still paying it because the includes it in the balance of your loan. Like payday loans, title loans can lead to you repaying several times what you borrow, adding up to a significant cost to fund your needs.?
One of the biggest problems with title loans is the risk of losing your car. According to a study from the Consumer Financial Protection Bureau, one in five borrowers has their vehicle repossessed.? If you’re unable to keep up with payments, the lender can take possession of the car, sell it, and keep its share of the money. In many cases, lenders keep the total amount of sales proceeds-because that was the value of the car in the resell market.?
If your car is repossessed, things can go downhill quickly. You might not be able to get to work and continue earning an income. Getting to work and back will take substantially longer. This lengthier commute impacts your quality of life, as it will be difficult for you and your family to complete daily tasks such as shopping and getting to school. If you don’t have to put your car on the line, don’t do it.
Explore the alternatives before you get a title loan. The options below might not be appealing, but they might be better than that getting cash for your title.?
If you must use a title loan for cash, plan for how you’ll pay it back before taking the loan so that you leave nothing to chance. Eliminating that debt should become your primary financial goal.