Tough economic times call for creative solutions to financial problems. Many families pay down debt or save money by selling unneeded personal property. Others borrow money against assets to make ends meet. If you own your car outright, you can use your car title to borrow money against your car. However, it is prudent to remain aware of the risks inherent in the transaction.
Ownership
Car title loans require that you use your car title as collateral to secure borrowed money. If you are paying off an existing car loan, you don't have title to your car; your lender does. Without a car title, you can't borrow money against your car. Therefore, you cannot apply for a second-hand car title loan, or a loan against a car that does not belong to you, despite whether you've received the owners permission.
How it Works
If you use your car to borrow money, the lender will hold the title to your car until you repay the loan in full. Most car title lenders advertise car title loans as an emergency measure, because they don't check your credit or verify your employment before they lend you money. Most car title loans are short-term loans that must be repaid or extended within 30 days. Accordingly, a car title loan may be a viable short-term solution if you know you will receive the money to repay the loan before repayment is due.
Dangers of Car Title Loans
Financial experts consider car title loans to be predatory loans -- high interest loans that borrowers have limited ability to repay. For example, many car title loans accrue interest at extremely high rates. However, some states restrict the amount of interest a lender can charge on a car title loan, whereas lenders may charge up to triple-digit interest rates elsewhere. According to the Center for Responsible Lending, borrowers most frequently extend car title loan repayments eight times before repaying them, and lenders usually repossesses vehicles otherwise.
Alternatives
Before borrowing money against your car, ensure that there are no alternatives that do not harbor the same degree of financial risk. Alternatives to consider include applying for a loan from a bank or credit union, borrowing from a family member, selling your property at a garage sale or online auction and selling jewelry for cash at a pawn shop. Moreover, you can perform a short-term or temporary service for immediate payment, such as babysitting, cleaning houses or repairing automobiles. For debts to old creditors, consider refinancing the terms of your debt rather than introducing a new one.
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