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5 minutes read. published on October 19, 2022.
David McMillin wrote the article. David McMillin Written by Contributing writer David McMillin is a contributing writer for Bankrate and writes about topics such as credit cards, mortgages, banking, taxes and travel. David’s aim is to help readers discover ways to save money and worry less.
Written by Rhys Subitch The edit was done by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain confidence to take control of their finances through providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. The Bankrate promise
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We are compensated in exchange for the promotion of sponsored goods and services or through you clicking certain links posted on our website. Therefore, this compensation may impact how, where and in what order items appear within listing categories, except where prohibited by law for our loan products, such as mortgages and home equity and other home loan products. Other factors, like our own rules for our website and whether or not a product is available in your area or at your personal credit score could also affect how and where products appear on this website. We strive to provide a wide range offers, Bankrate does not include specific information on every financial or credit product or service. All loans come with risks when they aren’t paid back on time. However, a car title loan comes with a particular risky consequence if you fail to pay your obligations on time and the lender may take your vehicle. Before you consider getting the title loan it’s important to know the potential negatives of using your vehicle as collateral to borrow money. How do you define car title loans? The car title loan also known as a “pink slip loan,” allows you to get a loan of anywhere between 25 percent to 50 percent of the worth of your car in exchange in exchange for giving to the lender their title of your vehicle as collateral. These short-term loans generally start at $100 and have repayment terms between 15 and 30 days. Car title loans target those who have had credit problems in the past and need fast cash. Most lenders have little to no credit requirements -Some won’t even . The application process is usually simple, and if approved, you can expect to receive funding within 24 hours later, sometimes even sooner. Access to loans is easy, which means these loan products have high rate of interest. Certain states restrict the amount of interest lenders are allowed to charge however, others have no limitations. And in some states, lenders are not permitted to offer the car title loans to customers. If you reside in the state that allows the use of car titles loans are permitted, you typically need apply for an loan. Certain lenders offer these loans if your vehicle is close to being paid off, but it isn’t as prevalent. How do title loans operate? Title car loans come in a range of varieties. Certain are single-payment loans which means that the borrower is required to pay for the full amount of the loan together with the interest fee within a month or as. be paid back over the course of three or six months, based of the lender. Although the word “car” could be included in the title of the product, the loans also can be offered for boats, motorcycles and other recreational vehicles. You can apply either online or in person but you’ll need an actual location to present your vehicle before the lender. Make sure you present the lender with an unbroken title and a photo ID , when applying for a car title loan. The lender may also want keys. The vehicle remains in your possession throughout the loan period, unless you default on the loan. To show how these loans work, assume you own a car worth $5,000 and you encounter an emergency and require $1000. A title loan lets you borrow against your vehicle so you can get the $1,000 quickly. Similar to a mortgage that utilizes your house as collateral while a title loan utilizes your car as collateral. To get the title to your car back, the loan is to be paid in total, which includes the high fees the lender charges for providing the loan. The fees usually include an average monthly fee for finance of 25 percent. This is equivalent to an APR that is 300 percent. For a $1,000 loan, you’ll pay another $250 of interest even when the loan is repaid in just 30 days. If you’re not on time with your payment and late penalties for late payments are determined and imposed, the loan may cost a small fortune. Some lenders will also charge processing, origination and document fees, driving the cost of borrowing more. You may also be required to obtain and pay for an emergency roadside assistance plan for your car. Downsides to title loans While getting an auto title loan could be simple however, it comes with serious costs and risks, according to Graciela Aponte-Diaz, director of federal campaigns for the Center for Responsible Lending. “If you are unable to pay back the loan when it’s due it’s carried over into another cycle, which incurs more costs,” says Bruce McClary who is the senior vice-president for communications with the National Foundation for Credit Counseling. “It can create a difficult situation for people who are already struggling to pay. It is the specific definition of the cycle of debt.” The main drawback to this is the potential to lose your car. If you can’t repay the loan the lender may take your car and then sell it to get the money. It’s not all that common. A study from the found that 20 percent of the people who apply for title loans are able to seize their cars. And, even more alarmingly, “some car title lenders install a GPS device — nicknamed a ‘kill switch’ — that can prevent the borrower’s car from starting and use this as a means of collecting a loan or making it easier to seize the vehicle,” Aponte-Diaz adds. With the real danger of losing your main means of transportation, it’s not difficult to understand the way an auto title loan could be a stressful experience. Alternatives to title loans With all the negatives, McClary recommends reaching out to traditional credit unions and banks to discover less expensive loan options. Or you can use a credit card if you have one available for your immediate cash requirements. Even if you don’t have a bank account, have a lower credit score or have been a victim of poor financial decisions before, it’s worthwhile to look into the various options available. “It’s fascinating how flexible traditional lenders are,” McClary says. “There are plenty of credit unions prepared to deal with bankless customers.” You can apply for personal loan Although qualifying for personal loan could be difficult when you have bad credit, you may have choices. Certain online lenders may be eligible to apply for. If you’re a member of a credit cooperative, you can also try explaining your situation to the banker. They may approve you for an loan depending on the quality of your connection and your banking history. You can also solicit a family member or friend with a stable source of income as well as a good credit score to make an application with you as a , strengthening your approval odds. Consider an payday alternative loan Payday alternative loans are a cheaper alternative to think about. They’re available through some credit unions, however you must be a member to access this loan product. The loan amounts vary between $200 and $2,000 which can be paid over a period of one to twelve months. The application fee is capped at $20, and you’ll pay no more than 28 percent of interest. This means that payday alternative loans more affordable than car title loans and some bad credit personal loans. Use a credit card You could also make use of a credit card if you have a dire financial need. You can also pull funds from your credit card using an . Be mindful that the interest rate on cash advances can be much higher than you’ll pay for purchases — anywhere from a to 30 percent variable. There’s also no grace period, and interest will begin accruing immediately. You’ll have that you’ll have to cover an ATM fee to withdraw funds. McClary does not recommend adding to credit card debt but suggests it’s a better choice than an auto title loan, as you’ll likely pay lower interest rates than you would for the car title loan. The bottom line: Car title loans are a convenient solution to access cash quickly. Still, the costs are typically not worth the risk, and you could be in a worse position than you were prior to taking your loan. Think about alternatives that are more affordable such as credit card or private loan as well as a payday alternative loan prior to settling on a title car loan. However, if you’ve exhausted your options and must use the title of your car loan make sure you review the fine details. Title lenders have to provide you with loan the terms in writing prior to signing, and federal law requires them to be transparent and upfront about the cost that they will charge for the loan.
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Written by Contributing writer David McMillin is a contributing writer for Bankrate and covers topics such as credit cards, mortgages banking, taxes, and travel. David’s mission is to assist readers discover ways to save money and also stress less.
Editor: Rhys Subitch Editor: Rhys Subitch Auto loans Editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain the confidence to take control of their finances with clear, well-researched details that cut complex topics into manageable bites.
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