When individuals or households need cash quickly, an auto pawn loan can be a way to get capital without jumping through a lot of hoops or filling out a lot of paperwork. In an auto pawn loan or auto title loan, a driver simply uses the title of their existing vehicle to finance the purchase of another vehicle, or for another type of personal loan. However, understanding the rules of these kinds of loans, including auto pawn loan rates, is critical for avoiding bad debt situations. Specifically, an auto pawn loan rollover affects your overall total payment over time. Ask these questions and get the facts on what’s involved in an auto pawn loan rollover situation.
One of the main problems with using an auto pawn loan to get money is that after the initial loan period, any unpaid amount “rolls over” into another loan, this one often including higher interest rates. Higher interest rates mean more money paid on interest. Trying to keep your interest rates below 10% to 15% is critical in any auto financing deal. Unfortunately, many auto pawn loan rollovers include massive increases in interest rates or APR.
The term of an initial auto pawn loan is generally short, as little as two weeks to one month. After this, the rollover kicks in, and higher interest rates often apply. Figure out what your loan term is to know when payment is due.
In many auto pawn loans, rollovers occur in a series, each one with a short repayment period. With multiple auto pawn loan rollovers, it’s possible for the interest rates to rise above 100%, for some very severe debt crisis situations for borrowers.
An auto pawn loan may include certain conditions like carrying extra insurance or other limitations on your collateral. Make sure to ask about any specific conditions required by your lender.
Because the threat of default is so high on the standard auto pawn loan, it’s worth asking the lender how they handle late payments or possible default situations. Some are more aggressive than others, and getting more information up front can help a buyer access whether to get into a specific loan agreement.
Another way auto pawn loan lenders can shortchange borrowers is to provide a low value for their vehicle, where an initially low loan amount balloons into a huge debt due to interest rate hikes mentioned above. Make sure the lender assesses a reasonable value for your vehicle.
Getting more information on these issues can show a prospective borrower a truer picture of an auto pawn loan agreement. Because of frequently excessive lending practices associated with this type of loan, it’s especially important for the buyer to do the homework before signing on an auto pawn loan.