Car title lenders offer quick, easy-approval loans using a borrower's vehicle as collateral. Loan amounts are based on a fraction of the car's resale value. Expect to leave your title, spare keys and a signed contract to obtain your loan. The USA.gov website warns that interest rates for car title loans are as high as 25 percent for a one-month term and are often difficult to pay back for borrowers with limited resources.
Vehicle Repossession
If you don't pay the title loan company, it will likely repossess your vehicle without warning depending on your state's rules. Some title loan companies repossess a vehicle as little as one day after a missed payment. The company can seize your vehicle from just about anywhere, such as your employer's parking lot, your driveway or from a store parking lot. Once the company repossesses your vehicle, it may resell it and keep the profit from the sale unless you pay your loan balance in full.
Damaged Credit
Some title loan companies report to the credit bureaus; some don't. Ask your lender directly about its credit reporting procedures. If you fail to make your payments, the repossession is reported to the credit bureaus and remains on your credit report for at least seven years. A repossession affects future lending opportunities. You might obtain a loan approval after the repossession, but with higher interest rates and restricted loan terms, such as a short term or large down payment requirement.
Interest Charges and Late Fees
Car title lenders are considered predatory lenders because of extreme interest charges and late fees. Some loan companies charge a high interest rate, such as 25 percent, and a full loan payment within 30 days. If you don't pay the loan, you can roll the balance into another 30-day payment plan and pay an additional 25 percent interest including late fees. If you're unable to make payments by the loan maturity date, you might pay back thousands of dollars in interest. The USA.gov website warns that triple-digit interest charges from extending the loan results in high payments.
Warning
Don't pursue a title loan unless you have the resources to repay the loan amount. Most people who need fast cash on short notice are often experiencing financial hardship, so paying back the loan with high a interest rate might prove difficult. Title loan lenders provide loans equal to a small percentage of a car's value, so consider selling your vehicle for its full private sale value instead. If you have questions about the title-lending rules in your state, the USA.gov website suggests contacting your state's consumer protection office.
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