Car Title Loans with Bad CreditCar title loans have some features in common with other types of payday advance loans. Here are a few of the similarities:
- Offer quick access to cash funds.
- Interest rates are unreasonably high.
- Bad credit does not disqualify an applicant from being approved for a loan.
- Repayment times are extremely short.
- Renewing loans can result in excessive fees and interest payments.
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):
- $15 origination fee
- $5 document fee
- $5 processing fee
- $500 interest charges
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.
- Investigate other borrowing options. These could be a cash advance from your employer, borrowing from a trusted friend or family member, or maybe a credit card advance.
- Consider your personal circumstances. Seriously look at your overall financial picture. Imagine if you were unable to repay the car title loan and you lost your vehicle. How would you get to work? Is it worth it?
- Look at what put you in this position. Living from paycheck to paycheck is difficult at best. Unforeseen expenses always seem to happen at the worst possible time. To help avoid future financial problems, find ways to cut expenses. Have a yard sale. Sell items online. All of these are less risky than taking out a car title loan.
- Change your spending habits. Two of the most important things you can do to improve your financial situation are make a budget and start saving. You work hard for your money. You should know where that money is going and for what. Having an emergency fund is non-negotiable. Start small if necessary, but start! Financial security is impossible without having savings.
- Borrow wisely. If you decide to use a car title loan to access some quick cash funds, be certain that you will have the money to repay the loan when it is due. Always borrow the least amount of money possible.