Ravinder Kapur

Car Title Loans

If you need some cash quickly, a car title loan can be a good option. You will be able to raise several thousand dollars by providing your car as collateral. These loans are available at title loan stores located in 25 states across the country or from online lenders.

You will usually be able to borrow up to 40% of the value of your car. The lender may specify that your car’s mileage should not exceed a certain limit. At times, a car title loan store may turn down your proposal if your car is older than a certain number of years.

How easy is it to get a car title loan?

It is both quick and easy to raise a car title loan. Many lenders will provide funds within a few hours of their application process being completed. Some car title loan companies may want to inspect your car before handing over the check to you.

Even if you have a poor credit score, it is possible to get this type of loan. Remember that the lender is extending finance on the basis of the collateral that you are providing and not on the basis of your credit history. You probably won’t even have to show any proof of income.

However, as your car is the security for the loan, you may be asked to leave your spare key with the lender. Some lenders may even insist on installing a GPS tracker in your car so that they can locate it in case you default on repayment.

Car title loans are expensive

The ease and speed at which you can get a car title loan comes at a cost. According to a study conducted by the Pew Charitable Trusts, an independent non-profit organization based in Philadelphia, the average loan costs 25% per month. That’s an annual percentage rate (APR) of about 300%. This astronomical rate makes it one of the most expensive finance options available.

Most loans are for a period of one month, but a majority of borrowers renew the loan, as they are unable to repay. This entails extra fees and adds to the cost of borrowing.

Available in 25 states

You can’t get a car title loan in every state. Additionally, each state where these loans are available has different rules governing title loans. Interest rates, loan duration, and fees are not the same across the country.

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Source – Pew Charitable Trusts

There are about 8,000 car title loan stores in the 25 states where these lenders operate.

You risk losing your car

What happens if you can’t repay? The lender may repossess your car and sell it. When that happens, it is quite likely that you will not get any money back even if you borrowed a relatively small amount.

This is because some states permit the lender to retain the amount that they receive that is in excess of their dues. Even if the law stipulates that the excess has to be paid to you, the chances are that there will not be much left over after paying repossession charges and parking fees for your repossessed car.