If you need fast cash and own a car, you may consider a car title loan. While this may seem like a quick fix to your money problems, this too-good-to-be-true solution has its share of problems. These are the disadvantages of a car title loan:
Lenders often charge triple digit annual percentage interest rates in the case of car title loans. Thus, before applying for the loan, make sure you have the realistic ability to repay it.
Not only does a car title loan have a high interest rate, it usually also includes other fees that can quickly add up to more than you want to spend. These could include fees for processing documents, late payments, roadside assistance, and lien. In addition, even though it is illegal, some lenders also charge a repossession fee. Pay attention to the fine print and understand the terms of the agreement before signing.
Car as collateral
Receiving a car title loan is as easy as handing in the car title and giving up an extra set of keys. Do not be misled by the quick money, however. The bottom line is that if you default on your loan, you lose your car. This is a risk which you cannot afford to take.
Short repayment period
A car title loan is a short-term loan with a typical repayment period ranging from two weeks to 30 days. Since the interest rate is high and most of the borrowers are from a low-income bracket, often people do not pay back the loan in the 30-day timeframe. In this case, the loan is rolled over to the next month and the interest rate is hiked up. This cycle keeps the borrower in debt.
If you think that a car title loan is the only loan option, think again. Other ways exist, such as taking a short-term, low interest loan from a local credit union, asking your employer for a cash advance, or looking into the possibility of emergency community assistance or small consumer loans. Though admittedly not an attractive option, you could consider asking your family or friends for help.
It is important to remember that your financial troubles are temporary. Thinking realistically will enable you to come up with smarter ways to raise finance without increasing your debt.
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