If you’ve ever been in a difficult financial situation it’s quite possible that you have contemplated taking out a ‘car title loan’, which is a short-term loan that is backed by your automobile as the collateral for the loan. What we’re going to show you in this short blog today is that car title loans are very risky, force you to pay ridiculously high interest rates and set you up to risk losing your car altogether. In other words, it’s definitely better to avoid car title loans if possible.
The fact is, even the Attorney General of the United States strongly suggested that consumers completely avoid car title loans due to the fact that most carry extremely high interest rates.
If you’re not sure exactly what they are, car title loans are basically small loans that are ‘secured’ by a person’s automobile or truck. The amount of the loans are generally quite small and usually less than $1000. Since a person’s vehicle is used as collateral, if they fail to make payments or default on the loan in any way their car can actually be repossessed by the lender. Indeed, usually the lender will keep an extra set of keys to the automobile and, even after only 1 single late payment, they can start the repossession procedures to take a person’s vehicle away from them.
The Attorney General’s Office says that there have been reports of interest rates of over 350% and, since the loan is secured by either a car or truck, there’s actually no justification for interest rates that are this high. The problem is so bad that the Attorney General is now asking the United States legislature to put limits on car title loans and the interest rates that they can charge. What they would like is for car title loans to have the same limits as other consumer loans, from approximately 21 to 36%. Until that actually happens however there is absolutely no limit on the amount of interest that a car title loan company can charge their customers.
An example of why these loans can be so damaging to your financial health is this; if a person borrows, for example, $300 at an interest rate of 360%, that person will have to pay $44.55 just for interest in 15 days and then, every 15 days thereafter, they have to pay the same amount until their $300 loan is fully paid off. For most people in a negative financial situation, $90 per month is going to be very hard to afford.
In most cases what happens is that the consumer who takes the car title loan can’t afford to pay the loan back right away and, instead, their interest costs begin to pile up and their financial situation gets worse. In the end, many consumers are actually forced to take out even more loans to cover the interest cost of their first loan.
As we mentioned, there is also a very high risk that a person who takes out a car title loan could lose their vehicle completely. Simply put, many lenders will start action to repossess and automobile even after only 1 late payment and, in as little as 30 days, a consumer could actually have their truck or car repossessed.
In the end, car title loans should be avoided like the plague. They are extremely costly, will often put a person into even more debt and, with a high risk of actually losing their vehicle, a car title loan is something that should be looked upon as an option of very last resort. The Atty. Gen. suggests that, instead of taking out car title loan, a person sets out to save a small amount of money every week or that they go to their local bank or credit union where there are often loans at much better interest rates.
If you feel that you’ve been taken advantage of by a car title loan service and you’d like to file a complaint or get more information, you can contact the Consumer Protection Division in Des Moines, Iowa, toll-free at 888 – 777 – 4590 and you can also surf to their site on the web at www.IowaAttorneyGeneral.org