Life happens to everyone. You may find yourself with unexpected medical expenses or a home repair you don’t have the funds for. If your credit score isn’t ideal, a car title loan may be a good option. But you don’t want to get stuck in a loan with an excessively-high interest rate or bad terms. Here’s what you should look for when you’re shopping for a title loan.
What are Title Loans?
First, it’s important to understand is a title loan is. With a title loan, a car or vehicle is used as collateral to secure the loan, eliminating (or minimizing) the reliance on a credit score. The title of the vehicle is signed over to the lender in exchange for the loan.
Why You Should Beware?
Title loans can be dangerous if they have bad terms or extremely high interest rates. Many title loan companies use rates of 200%-300%, making it impossible for borrowers to ever repay the loan. Many title loan companies also require borrowers to pay back the loan in a matter of 15-30 days. In this case, the average loan payment can actually consume 50% of of the borrower’s income. And one in nine people who have borrowed against their car have it repossessed by the lender. This is why it’s so important to know what to look for when you’re shopping for a title loan.
What to Do If You Need a Car Title Loan?
If you find yourself in need of a car title loan, there are few things you need to know:
- Understand the interest rate — We’ve mentioned how title loans are infamous for their interest rates and, with potential to be paying a 300% APR, you definitely need to ask each loan company you’re contacting what your interest rate and monthly payment would be.
- Review the terms — Title lenders are required to give you the terms of the loan in writing before you sign. Read the terms carefully, review your APR, and take note of any processing fees, late fees, or other charges that will add to your overall cost.
- Beware of add-ons — On top of your loan, some title loan companies require you to purchase additional services like a service plan or roadside assistance. These charges will ultimately raise your APR and interest rates, making costs even higher.
Before taking out a title loan, here’s what you should do:
- Shop around — Regardless of the type of loan, always shop for the best offer. Compare terms and information, and remember you’re always looking for the lowest APR.
- Ask for more time on payments — If you’re looking at your title loan as a way to help you pay bills, which approximately half of people do, ask for more time on your payments. If they are willing to grant an extension, be sure that the service doesn’t come with additional charges or a higher interest rate.
- Get help — If you’re having having serious financial issues, it may be worth your while to seek the help of a credit counseling service. These services can often be offered at little or no cost.
- Create a budget — If you haven’t already, create a budget around your expenses vs. income and find ways to cut costs where possible. Avoid unnecessary spending on small items that add up over time.
Title loans can be dangerous because there are so many predatory title loan companies out there. But if you’re armed with the knowledge we’ve outlined here, you’ll know how to prevent yourself from getting trapped by a high-rate loan with bad terms. And if you need a loan and your credit isn’t great, a good title loan can work well for you. It is important that you understand the terms of your loan, make payments on time, and shop around for the best rates possible. Are you currently looking for a way out of a high-rate loan? Contact us today about how to get out of your high-rate loan and get set up with a better, lower-rate loan. Call us at (864) 232-8255!