Title:
Car Title Loans Offer Risky Cash
Word Count:
427
Summary:
Auto title loans, an alternative to payday loans, are an expensive source of cash. Worse, they could cause
you to lose your car.
Keywords:
Defective automobile, vehicle defect. Lemon law, auto warranty, auto lemon, arbitration,
Article Body:
Payday loans have received a lot of negative press lately as states and municipalities try to regulate an
industry that legally lends small amounts of money at interest rates that can reach a breathtaking 1000% per
year. A less well-publicized variation on the payday loan is the car title loan, which requires the borrower to
provide his or her automobile as collateral for the loan amount. While this type of loan is not as widely
publicized as the payday loan, the car title loan is even more dangerous, as it could cost the borrower their
car!
Payday loans, also known as cash advance loans, are unsecured loans. The lender trusts the borrower to pay
back the money within two weeks. This type of loan is risky for the lender, but that risk is more than offset
by the high interest rates charged for the loans, which can easily top 400% on an annualized basis.
A car title loan works differently, however. With this type of loan, the borrower offers his or her car as
collateral and is often asked to provide a spare set of keys when the loan is granted. Should he or she default
on the loan, the car will be forfeited and sold to repay it. In some states, the lender may sell the car and keep
all of the proceeds from the sale, even if they exceed the value of the loan.
With collateral, one would think that the interest rates for such loans would be far less than for payday loans,
but that is not the case. Nationally, interest rates for auto title loans average about 300% per year, which
hardly makes the loans a bargain. In addition, the loan amounts rarely represent more than a fraction of the
value of the vehicle. A loan of even half the vehicle's value would be regarded in the industry as quite
generous.
The same sorts of problems that occur with payday loans also happen with title loans. The borrower is often
unable to repay on time and must extend the loan by paying an additional fee. Under some circumstances, it
is possible for the fees to eventually exceed the value of the loan itself. And unlike other loans, the borrower
is under pressure to avoid losing their car.
This type of loan is overwhelmingly weighted in favor of the lender, who will end up with something of far
greater value than the loan should the borrower forfeit. Those who have short-term cashflow needs would be
well advised to borrow from friends, relatives or a credit card instead.
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