Human beings make mistakes, and according to me, one cannot be a human if he does not make a mistake because only angels don’t make mistakes. The car title loans are also known as auto title loans, and these loans are a type of ‘predatory lending”.
Why do people take these loans?
People take the car title loans if they are strapped for cash, and they own their car free and clear meaning that they don’t have any pending payments regarding their cars like bank loans for car etc. With the car title loans, a person can get instant cash by placing his/her car as collateral due to which if someone requires money urgently he/she might opt for this type of loan. But the thing to note is that the car title loans are among the most expensive and risky types of loans like the payday loans and pawn shops. All of these mentioned loans fall into the category of the predatory lending. These lenders of this type of loan always target those people who are in financial crisis at a particular moment, and they are willing to pay a high price for the credit.
Working of these loans
This Is the loan which works by using your car as collateral. Collateral is the property which is used to secure a loan or we can define it as “Collateral is the method which ensures a lender against a loan default”. If a situation arises such that the borrower can’t repay the loan on time, then the lender has the right to possess the car of the borrower if the car is listed as the collateral in the agreement. Some of the hardcore title loan lenders also install a GPS device in your car to track wherever you go. So these lenders can find you and posses your car in case you fail to repay the loan on time.
Cost of car title loans
The lenders of car title loans charge an interest of 25% on loan per month which makes the annual percentage rate of 300%. The average credit cards charge yearly percentage rate of 15.6% even though the credit cards are the most expensive traditional credit ways. The auto title loans also charge a lot of other fees on top of the interest. This shows that the auto title loans are costly and risky. For example, if you take $1000 as car title loan, then you will have to repay $1250, and god knows how much-hidden fee in thirty days.
What are the alternatives?
Even If your credit card score is weak, you still don’t have to go for the auto title loans because there are many credit counseling services available. You can consult any good credit counseling service, and they can give you a debt repayment plan. If you are in a great rush for money, then you can go for the cash advance on a credit card. The cash advance method is also costly but it not as bad as the auto title loan.