Title loans

People who need cash and need it now often turn to title loans. With this type of borrowing, you are using your vehicle’s auto title—a document that proves you own your car—as collateral for short-term financing.

That means if you default, the lender has the legal right to sell your vehicle to recoup their money. Additionally, as with many other loans that are accessible to consumers with bad credit, you will pay exorbitant costs that could double the amount you owe in the end.

A title loan provides cash quickly, often in as little as one day. You can typically take out between 25% and 50% of the value of your car, which ranges from $100 to $10,000. Since you will be charged such a high interest rate, lenders often don’t consider your credit or require proof of employment or income. This makes them easy to acquire, even if your credit history precludes you from receiving approval for a standard loan.

While receiving the cash you need quickly might sound good, you could also be responsible for paying it back quickly – often in as little as 15-30 days. If you are awaiting a large cash payout, perhaps through a work bonus or tax refund, those terms might be acceptable. But if you are not sure where the funds will come from, you are putting a lot on the line.

Requirements

To take out this type of loan, you must own your car outright or have it mostly paid off. In addition:

• You must visit a physical location with the car to apply
• Provide a clear title, a photo ID, proof of insurance and any other documents the specific lender may need
• You may also need to give the lender a second set of car keys
• Keep your car during the repayment process.

If you don’t have the means to repay the debt on time, you might be able to roll your existing loan into a new one. But that only adds more interest and fees to your debt. So, you could say that you are making an impossible situation even worse. If you end up defaulting, the lender can seize your vehicle and sell it to get back what you owe.

Even if you do repay on time, title loans carry much higher costs than most other lending alternatives. Practically any other borrowing option, with the exception of payday loans, is a safer bet.

Title loans are often considered as predatory lending due to the exorbitant interest rate they charge. They aren’t even permitted in all states. Where they are allowed, some employ interest rate caps while there are no regulations in other states.

The Consumer Federation of America has compiled the intricate details of title loans. No matter what financial situation you find yourself in, this type of loan is never a good idea. There are many other—and better—options.

For instance, you will never be asked for collateral with debt settlement. If you take this route with National Debt Relief, you could resolve your debt in as little as 24-48 months.