Things to Know Before Getting a Car Title Loan

Car title loans are for those who need cash fast to cover invoices, manage debt or handle a catastrophe. When you have got a vehicle outright or owe very little on it, a car title loan might be easy to get. But fast and easy does not necessarily imply good. You may pay high fees for this type of loan, and you are likely to risk losing your car or truck unless you consider title loan refinancing. Below are some of the things you need to know before you take a car title loan.

Title Loans Have High-Interest Rates

With a car title loan, it is not uncommon for lenders to charge about 25% of the loan amount per month to fund the loan. Take this, if you get a 30-day car title loan for $1,000 and the fee is 25% ($250), you’d have to pay $1,250, plus any additional fees, to pay off your loan at the end of the month. It is higher than other types of loans, such as credit cards. When you get an auto title loan, the lender must tell you the APR and the total cost of their loan. You can compare this information with other lenders to get the best possible deal for you.

You Need to Own Your Car or Have Equity in It

An auto title loan is a small, secured loan that uses your car as collateral. The loan term is short, usually only 15 or 30 days. And although it’s known as an “auto” title loan, this type of loan also applies to other vehicles, including motorcycles and trucks. Car title loans range from $100 to $5,500, an amount typically equal to 25% to 50% of the car’s value. It is usually 15 or 30 days, thus it is a short-term loan and applicable as well to other vehicles, including trucks and motorcycles. To get a car title loan, then, you need to clear titles – 100% ownership of the car, no exceptions – or at least some equity in your vehicle. In addition to the car title, the bank usually asks for the vehicle, a photo ID, and proof of insurance.

You’ll Lose Your Car if You Can’t Pay

If you get a car title loan and cannot pay back the amount you borrowed, along with the fees, the lender may allow you to convert the loan to a new one. Each time you do this, you will have to pay a lot more interest and fees on the amount you rolled over. Let’s say you have a $500 loan with a $125 fee. At the end of the 30-day term, you can’t pay it back. If you were to cover your new loan, you will have paid a total of $250 in fees on the $500 you borrowed. If you extend your loan further, you could end up in a cycle of more fees that make it impossible to repay the lender. If you find yourself in a situation where you can’t pay off the debt, the lender may repossess your vehicle. And you could end up paying more in penalties to get your car back, along with the past due amount. Assuming you can’t put it together, you’ll find yourself looking for (and paying for) a new type of transportation.