It has been said, that a car title loan allows you the opportunity to draw facility to settle pressing financial expenses within a short period.
Most people who are in the financial circle believe that title loans are predatory. This means that a car title loan has some unfavorable characteristics for borrowers. Outlined below are the main reasons why a car title loan is just not worth it.
Excessive Fees – like origination, administrative and late fees.
High Interest Rate – The rate on most personal loans ranges from 10 to 12% APR, but rates on title loans are generally higher. The loan may appear cheaper because interest rate is, most time, quoted in monthly terms. For example, a monthly rate of 14.99% translates to an APR of about 180%. The average interest rate on a car title loan is somewhere between 200% and 400% in many unregulated states and may as well surpass 1000% in some cases.
Short Repayment Period – The repayment period for these loans is just 30 days. When the borrower cannot make the payment by the due date, the loan is then renewed in what is called “churned”. Churn means adding new layer of fees and interest charges. In this way, the lender will make excessive profit. In almost all cases, the lender depends on the inability of the borrower to repay the loan on the due date to make excessive profit. With this, an average borrower refinances a loan eight times which results to the borrower paying more than the original loan amount he borrowed.
No Underwriting – The lender is not required to ensure that the loan borrower has the capacity to repay the loan. According to PlungedInDebt.com, certain lenders do not check credit which is another telltale sign that the lender is really out to own your car.
Questionable Marketing – Most of the time, title loans are marketed to consumers with little to no financial options.
Car title loans have other characteristics that make it even worse than other unfavorable financial products. For example, lenders may demand access to the borrower’s bank account in order to make schedule withdrawals automatically. Although, federal law prohibits this, but some lenders ensure that their borrowers agree to this term by charging them higher fees and interest on other repayment option other than this.
When a borrower is granted a loan, it means that the lender will hold a lien against the borrower’s car until the loan is repaid. Should the borrower default, the lender will repossess the car. Therefore, many lenders will require you submit a set of your car keys and even mount a GPS tracking device on your car when necessary as a condition for the loan.
So, when you digest all these and compare it with other loans available today, you will be forced to ask yourself, is it worth it? Is it helping me to solve my financial emergency while providing me with a flexible repayment plan that isn’t too expensive? You answer is as good as mine going from the information we have in this write up.
A car title loan is a 30 days loan that is not subject to the same requirement and laws governing other traditional loans. This leaves room for a lot of manipulation and exploitation. The lenders do what they choose and because you are in dire need of the loan amount, you may not carefully consider these terms before jumping to take the cash. You only get to notice this in the middle of your repayment and at that point, you are left with no choice.
Bottom line
Loans are there to help you meet financial obligations, especially those that are unexpected and unplanned. Any loan that does not take into consideration your ability to repay is not worth your time because at the end, it leaves you more miserable than before. Therefore, car title loans, as it is presently constituted, are not worth it.