Car Title Loans Options and Risks
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Car Title Loans Options and Risks
Title car loans are costly and could cause you to be in a cycle of debt. Consider other options.
Written by Sean Pyles Senior Writer | Personal finance, credit, and personal finance Sean Pyles leads podcasting at NerdWallet as the host and producer of NerdWallet’s «Smart Money» podcast. On «Smart Money,» Sean talks with Nerds on NerdWallet’s NerdWallet Content team to answer listeners’ questions about personal finance. With a focus on shrewd and actionable financial advice, Sean provides real-world guidance that will help consumers improve in their finances. In addition to answering listeners’ money questions on «Smart Money,» Sean also interviews guests who are not part of NerdWallet and produces special segments that explore subjects such as the racial gap in wealth and how to begin investing and the background of college loans.
Before Sean lead podcasting for NerdWallet He also covered issues that dealt with consumer debt. His work has appeared throughout the media including USA Today, The New York Times as well as other publications. When when he’s not writing about personal finances, Sean can be found playing in his garden, going on runs , and walking his dog for long walks. He is based at Ocean Shores, Washington.
July 22, 2021
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Car title loans allow you to get cash quickly usually between $100 and $10,000 -to be exchanged the title of your car as collateral. They’re a type of secured loan that is backed by property the lender can get if you don’t pay.
These loans can be costly as they come with high costs and annual percentage rates often exceeding 260 percent. If you’re strapped for cash, you likely have better options, like seeking a credit union.
How do car title loans work
A potential borrower goes towards the lending institution with the vehicle and the title. The lender assesses the car’s worth and then offers the loan based on the percentage of that value. The average loan is $1,000 per month, according to Pew Charitable Trusts. Borrowers can drive away with their money within less than an hour, but the lender will hold onto their title as collateral until the loan is repaid.
There are two kinds of car title loans:
Single-payment loans will require the borrower to pay with one payment. Typically, it is 30 days later. They typically have an APR of 300 percent.
Installment loans allow borrowers to make multiple payments, usually spread over three to six months and offer an average APR of 259%..
Generally, car title lenders have fewer requirements for potential borrowers, such as not conducting credit checks or requiring evidence of income.
Nerdy Tip
An installment loan could be a more affordable method of borrowing money. These loans permit you to take out the money all at once and pay it back with fixed monthly installments over a time period of years or months, instead of weeks. You won’t need to put up collateral, and loan amounts are generally higher, while interest rates are typically lower. The majority of lenders require a credit test for applicants, however you can get a loan even with bad credit.
Why car title loans are dangerous
Imagine car title loans like payday loans’ bully brother.
While their interest rates are lower than those of mortgages, that can be as high as of 1,000%, car title loans’ interest rates are not low. The maximum amount that is «affordable» is usually thought to be 36% APR. The fees and cyclical borrowing costs associated with title loans increase the risk of being expensive.
And if you can’t pay the amount agreed upon, you could be forced to forfeit your car. In actual fact, 20 percent of people who apply for one-time, short-term title loan , according to an investigation by the Consumer Financial Protection Bureau.
Car title loans could also create the cycle of debt the CFPB found. The majority of single-payment loan holders renew their car title loans multiple times with fees every time. Only 12% of single-payment customers pay off their loan according to the CFPB. The remaining third have renewed their loans at least seven times. If you take an amount of $1,000 loan, that would mean at least $1,750 in fees alone.
Can paying off a title loan increase your credit score?
In short, no. The lender does not report your payments to the credit bureaus, which means that paying the loan doesn’t create credit. If you don’t make payments, the lender likely won’t send the debt to collection agencies, thereby damaging your credit — it could simply take possession of your vehicle in order to settle the debt.
Car title loan alternatives
There are options for quick cash that are less expensive- and are less risky than a traditional auto title loan.
Before you apply for a car title loan:
Try all the other options If none work contact your creditor to see what options you have, whether you can negotiate an arrangement for payment or take care of the short-term financial consequences of not paying, such as late fees.
Other alternatives to the high interest loans
1. Ask friends and family to help you with the possibility of a loan via or .
2. Get help from .
3. Find an institution like a credit union.
4. Ask your employer for an advance in your pay or a like Earnin.
5. Make sure you are secured by the item you own.
6. Explore other methods to .
Consider the costs of taking the loan against having it not taken: Figure out the overall price of having funds needed to fulfill your goal and then compare it to the cost in charges and interest on a car title loan.
If you are taking out the title of your car loan take the time to make room in to pay it back as soon as you can. This will help you manage the costs and decrease the chance of having your car repossessed.
Author bios: Sean Pyles is the director of production and host of NerdWallet’s Smart Money podcast. His writing has appeared on The New York Times, USA Today and elsewhere.
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