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Car Title Loans with Bad Credit

Car title loans have some features in common with other types of payday advance loans. Here are a few of the similarities: Banks and credit unions have tightened their lending requirements thereby making it very difficult, if not impossible, for consumers with poor credit to qualify for a personal loan from a traditional lender. That leaves many individuals with few options when an unexpected financial emergency happens. But high-risk loans such as car title loans should only be considered when other borrowing options have been investigated and ruled out. Let's discuss the features above in a bit more depth. If you are faced with an unplanned financial need and are desperately trying to find some extra cash, it can be a stressful and even embarrassing situation.

No one likes to be in the position of having to come up with cash funds in a short amount of time. So at first glance, a car title loan may seem like a real lifeline to help get you through this financial rough patch. But upon closer inspection, consumers should be very wary of committing to a car title loan. While a car title loan does get you quick access to cash, it also is a secured loan. This means that you must offer your personal vehicle as collateral for the loan. Car title loan lenders do not perform credit checks on applicants for this reason.

These lenders know if a borrower ever defaults on a loan, they have the legal right to repossess the vehicle and sell it to recover the money which is owed. Also, interest rates and fees for a car title loan are extremely high. Many car title lenders will quote an interest rate which doesn't seem unreasonable but this is the monthly interest rate. For example, if you are told the interest rate is 25% on a car title loan, the actual annual percentage rate (APR) will be 300%! There also can be document fees, an origination fee, processing fees, and lien fees. As an example, here is what might happen with a typical car title loan.

Let's say the loan amount is for $500 and the repayment period is 30 days. You offer your car title as collateral along with an extra set of keys to your vehicle (if you fail to repay the loan when it is due, the lender now owns the car and can repossess it, regardless of its value). Average fees on a loan such as this would be a $15 origination fee, a $5 processing fee, and a $5 document fee. You would then sign the loan agreement in which you promise to pay the lender $125 in interest (25%) plus the $500 principal amount. And it's all due in 30 days! If you are unable to repay the loan when it is due, many lenders will allow you to extend your loan for another 30 day period.

Most will require that you pay the interest amount ($125) on the original due date. Loan extensions vary according to the state where you live but on average a car title loan is rolled over at least four times before being fully paid off. The true cost of this "typical" $500 car title loan would be this (if you had to roll it over three times for a total of 4 months):
  1. $15 origination fee
  2. $5 document fee
  3. $5 processing fee
  4. $500 interest charges
So to borrow $500 dollars (plus incur the risk of losing your vehicle) you would now have paid an additional $525 in interest and fees. You would have spent $1025 to borrow $500! These are sobering facts which should indicate to you the seriousness of borrowing cash with a car title loan.


Steps to Take


If you have bad credit and are considering using a car title loan to get the cash you need, here are some suggestions worth thinking about before making a final decision. Car title loans are short-term loans. This means that they have a very short repayment period (usually 30 days). These loans are not designed as a solution to long-term debt problems. In fact, reckless use of short-term loans can make a bad financial situation much worse. If you are experiencing overwhelming debt you should contact your creditors and make them aware of the situation. Most will be happy to work with you to try and arrange payment options. Professional credit counseling has also helped many individuals faced with massive amounts of debt. Contact your local Better Business Bureau for a listing of reputable credit counseling services in your area.
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