Car title loans can crush you with debt

Buying a car can be expensive, as can owning a car in general. The only thing more expensive than paying for a car is paying for a car you no longer have. That may sound strange, but it can easily happen if you take out a car title loan.

We have written elsewhere about payday loans. These high interest loans involve lending small sums to people in need over a two week period. The borrower writes a postdated check for the loan amount plus a fee and in two weeks’ time, they pay it back or have the lender cash the check. The fees are high; they can run anywhere from $10 to $30 per $100 borrowed, but the lenders say that such fees, which can amount to 400% or more in interest on an annual basis, are necessary. The reason they are necessary is because the loans have no collateral. They are only backed by the borrower’s promise to repay.

Such is not the case with car title loans, which are gaining in popularity in quite the same way that payday loans are. Car title loans work much like payday loans, although the loan terms tend to run to 30 days, rather than two weeks. The interest rates are a bit lower, but not much; they can easily amount to 30% per month. The major difference between a payday loan and a car title loan is a big one - the title loan is backed by collateral your car’s title.

What does this mean? It means that you can borrow money just as easily with a car title loan as with a payday loan, but if you fail to pay you will find a tow truck hauling your car away. Payday loans get a justifiably bad reputation for being expensive, but in many ways auto title loans are worse. The lenders aren’t overly generous; you will only be able to borrow a fraction of the value of your vehicle. In most cases, loans will still amount to only a few hundred dollars. If you fail to pay, your car will be repossessed. In some states, the car may be sold in order to recoup the loan amount. In Georgia, the lender may keep all of the money after the sale. You get nothing, even if the car is sold for five times the amount you owed.

Should your vehicle get repossessed, you will usually be permitted to get it back by paying the principal, the additional interest due, and any other associated fees such as storage fees, impound fees, and towing fees. Of course, you might have some trouble paying these fees and the loan amount if you cannot get to your job because you don’t have a vehicle. This is the fundamental problem with auto lending - failure to pay takes away the borrower’s means of getting to work.

This type of financing is expensive and dangerous. You should try to borrow using other means, such as a credit card, instead.

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