 
How Auto Title Loans Can Help and Hurt You
When you’re in need of some extra money to help
you get the food on the table, or pay your rent, sometimes you find
yourself in a position to make some tough decisions. It is not
uncommon for people to take out a payday loan to cover their
finances for a few weeks until they receive their next paycheck.
Some people even resort to pawning their items to for quick cash in
hopes that they will be able to get them back when money comes in.
But there are times when people get very desperate for money and
take out auto title loans. This is usually frowned upon by everyone
because of the risk involved. So if you were ever thinking of taking
this route, read this article first before taking that step.
What are Auto Title Loans?
Auto title loans are short-term loans, similar
to payday loans that give you extra instant cash in exchange for
some type of collateral, be it a check you wrote for the amount of
your loan, or another item you surrendered for the time-being like a
camcorder or VCR. But in the case of auto title loans, what you’re
surrendering for collateral is the title to your car. And if you
don’t pay back the balance of your loan within a certain time frame
you could be very well giving your own car away to a financial
institution.
This is not the only reason these types of
loans are dangerous, however. In addition to the threat of losing
your car, you have to worry about extremely high interest rates,
sometimes in the triple digits. And the amount you are likely to be
loaned will be so significantly lower than the value of your car
(sometimes even as low as $600) that you will feel you are signing
your soul over to the devil for money – and you are because
essentially you’ve taken the chance of giving your car away to a
company that is willing to take advantage of your weakness (the need
for money to survive) to hold you as a financial hostage.
The Terms of Auto Title Loans
Most auto title loans have terms not much
different than that of a payday loan institution. You bring in your
collateral (in this case, your car title), and sign some paperwork
agreeing to pay the loan back – with interest – within the time
designated by the contract, then they hand over the amount to you,
and you drive away in your car. Many title loan companies will take
a picture of your car to verify it is real, and usually won’t allow
you to take out the loan unless the car is fully paid for – you
usually don’t get the title from the auto dealer unless it is paid
for anyway.
Once you’ve signed the contract and left with
the money, it is normal to have 30 days to pay for the loan. If the
30 days comes and goes, they normally won’t take your car right
away, giving you a little additional time (and interest) to come up
with at least a portion of the money. But if the times come to pay
in full and you don’t have it, they have the right to take your car
– which is now theirs legally – and sell it to get their money back.
Depending on the institution, you may have up
to 6 times to renew your loan before you default, which can sound
like a great deal. However, with each renewal comes increased, or
rollover, interest charges. So, for example, if you take out a loan
for $1000, and the percentage rate for the month is 25 percent, then
the first time you renew, you’ll owe back $1,250. If you pay them
only $250 for the month, then the amount, plus the new interest
accrued, rolls over to the next month; so even though you paid $250,
it doesn’t bring your final balance down because you owe interest
for the next month, making your sum for month two $1,250. In total,
you will have paid 50 percent interest due to rollover, and the
longer you rollover, the more they will add until they decide to
take your car. This makes the financial obligation huge and the risk
is even greater.
What is the Largest Amount I Can Borrow?
No state law allows a lender to loan out more
than the fair market value of the car. The fair market value is
determined by looking at appraisal guides like the Kelly Blue Book.
Most lenders, however, give out auto title loans in amounts around
the range of $601 to $2,500. Just keep in mind, when accepting the
larger amounts you have to consider the interest rate attached and
how much money you could easily end up owing if your loan rolled
over. Pay close attention to your interest rates when borrowing and
definitely do not take out more than you need. Again, your risk is
greater than a bounced check – you may very well be putting yourself
in a position to lose your car, so make your decision very
carefully.
What if I Change My Mind?
If you go in to take out a title loan and
realize you’ve made a mistake, you are allowed to cancel the
agreement as long as you do so within one business day of the date
you took out the loan. As long as you cancel within this time frame,
you only owe back the amount of the loan, minus any interest rates.
Taking out auto title loans should never be
your first choice in borrowing money; if you have a friend or family
member you can go to for help, doing that should definitely be your
first option. Of course, it is a very real fact that not everyone
has a person to turn to for financial assistance. If this is you,
you may have to look to the possibility of auto title loans for
help. Just know that going this route is very risky and may end up
having consequences you will greatly regret. So decide wisely and as
soon as possible, begin saving little bits of money at a time so you
will not need to rely on others for financial assistance.
|
