Car title loans are a bad idea because the very thing you need the most in your ever moving world is used as collateral: Your car. As is with most times, this car is the only thing the borrower’s have to rely on, because of bad credit and low incomes. While it may seem like a potentially good and quick way to get a loan when other lenders won’t give them a second glance, they might as well seek out a loan shark, because they’ll almost always be the victim in the exchange.
The basic principle is simple to follow. The borrower signs over their paid car title to the lender in return for a loan that is 30% to 50% of the vehicle’s net worth. Attached to the loan is a percentage interest that looks comparable to a credit card’s Annual Percentage Rate (APR), but is far more sinister because that number is only reflective on the month itself, and not the entire year. With the loan interest and the signed title, there are also processing fees that guarantee upfront payment for the lender. To top it all off, these lenders demand that the loan be repaid in full by the end of a month’s duration.
Often, to ensure their loans will come back to them, lenders will install special tracking or disabling devices in the car, so they can find them in a moment’s notice. These lenders also have duplicate keys made so they can come at any time the lender falls behind their payments, in order to repossess the vehicles and sell them off. Any money the lenders make on the sale is theirs entirely, which can be anywhere to three times the loan itself. However, usually it won’t come to that unless there are outstanding payments to be made, as they are in favor of the triple digit APRs and rollover late fees.
Since the borrower in question is of poor credit and low income, it is nearly impossible for them to repay the loan, fees, and interest in the thirty days allotted to them. However, that’s ok, that’s usually what the lender wants. With the additional charge of rollover fees, the remaining balance and the interest rate of anywhere up to 25% (300% APR), the lender has everything to gain while the borrower struggles to meet payments. After all, if the borrower can’t afford to stay in the pay game any longer, then the lender simply repossesses the vehicle, and sells it.
For the whole process with the pain and the loss of a car, was it worth the initial loan the borrower received in the beginning? Certainly not. In hindsight they would never do it again. After all, a little cash in exchange for loss of a vehicle and financial devastation? That’s just a bad idea.