When in need of fast cash some will consider car title loans as an option, but these are one of your worst options and we’ll tell you why. An auto title loan might provide quick cash and appeal to those with poor credit, but for many it becomes an even more expensive way to borrow than originally expected.
What is a Car Title Loan?
This is a secured loan that uses your vehicle as collateral. While part of the appeal is that you can quickly get fast cash, it should be a last resort. When you take a car title loan, you have until the end of the term (usually 30 days) to repay the amount borrowed plus interest and any fees that might be involved. If you are unable to pay and default on your loan, the lender can repossess your vehicle. Car title loans are not limited to just cars. Some lenders will consider trucks, motorcycles, RVs, and some recreational vehicles like ATVs.
How Much Can I Get For A Car Title Loan?
The amount you can get for car title loans depends on the value of your vehicle along with the lender and the province. In some cases the amount can be as much as 75% of the vehicle’s value, but for most people applying for car title loans they might get between $1,000 to $10,000.
The estimated value of your vehicle is what it would be worth if sold that day and not what was paid for it when you got the vehicle. You can estimate what that might be when looking online for comparable vehicles and what they’ve sold for.
Why to Avoid Car Title Loans
The thing to remember with car title loans is you can lose your vehicle if unable to make payments. Many car title loan lenders will try to give you about half the value of your car or truck. One of the main reasons is they know that many will default (fail) with payments and the less the loan out means more profit after the vehicle is repossessed and resold.
Imagine that you had a car worth $4,000 easily, but the car title loan lender only offers $2,000 since he knows you are desperate. Reluctantly, you accept, thinking you’ll pay it in a couple weeks. But things don’t go as planned and the lender takes your vehicle, as per the terms of possibly all car title loan agreements.
Car Title Loan Alternatives
When you have bad credit and the banks won’t help, there are a number of alternatives and online lenders for installment loan options and also online loans for bad credit that are better than a high interest car title loan. Even a credit card cash advance could be a better choice if an option.
What Else to Know About Car Title Loans
A car title loan is a costly way to borrow, much like how payday loans are expensive, and the interest rates of this type of loan can reach 400% or more.
While they can seem like a good option for someone that’s without income and unemployed, this type of emergency loan has its risks.
Since a car title loan only factors the vehicle, and not the borrower’s income or credit score, this can also be appealing for others that might not fit within what many lenders are looking for when it comes to payday loans or installment loans.
When you take a car title loan, you are at risk of losing your vehicle if unable to make the payments. In one study it found that 1 in 5 people that used a car title loan had their vehicle repossessed for failing to make their payments.