As the economy has gotten worse, more people are turning to cash loan car title programs to make ends meet. Unfortunately, some companies out there will take advantage of desperate people.
With a title being used to secure your loan, this is very popular with people with less than perfect credit or that need money but can’t wait for the regular loan process to be completed. Listed below are some of the pitfalls of this type of loan that the consumer needs to be aware of and avoid.
Car title cash loan companies lure customers by advertising their (seemingly) low monthly interest rates for short-term loans. Typical car cash loans actually have rates in the hundreds percentile rank. Indeed, some states allow companies to charge low monthly rates that will translate into annual rates well above 100 percent. Additionally, the loan amount, plus interest, is due in full in 30 days. Make no mistake, the short 30-day due date allows these companies to trap you into using rollovers and can lead to equity theft.
Interest rates as high as 14 to 20 percent are not uncommon with car title loans. This means that it is in your best interest to obtain the bare minimum of financing possible from these title loan lenders. It is also in your best interest to make sure that there aren’t any clauses in the contract allow the car loan title company to greatly increase your interest rates if you are either late with a payment or you miss a payment.
The interest rates on these types of loans are incredibly high to start with. These loans are usually only for a month or so, so the interest rates are not in APR figures, but monthly. Though a 25 percent interest rate seems fair to get the quick cash, it is the equivalent to a 300 percent interest rate.
Because of short time frame loans, and lump sum payments, most people cannot afford to pay their cash loan on time. Predatory cash loan car title companies will offer the customer an extension that allows them to make an interest only payment. The full amount owed plus interest now becomes a rollover loan. This does not reduce the debt. In fact, the debt will continue to grow with additional interest, making it even higher and more difficult to pay off. The average car cash loan customer uses 3 or more rollover extensions before they can pay off the debt. Most states have laws limiting the number of rollovers a customer can have. The customer soon runs out of rollovers and realizes that their vehicle is now at risk.
Some companies require the customer to supply them with a set keys and/or the vehicle’s title before granting a loan. Once a loan is granted, the company will place a lien on the vehicle. The lien will stay in force until the debt is paid in full and until you provide proof to the DMV that the debt has been satisfied. This means that late payments, missed payments or partial payments are grounds for repossession.
Many states do not regulate car cash loans, so the number of repossessions is not known. Of the states that do attempt to regulate these types of loans, many have loopholes that predatory companies willingly exploit. After the rollovers end, the customer must now try to make a deal with the car cash loan company. Once a vehicle is repossessed, the company will quickly place it at auction to satisfy the debt. Moreover, the customer is still responsible for the balance of the debt.
No matter how much or how little you’re planning on borrowing, be sure to read the contract very carefully so you know exactly when your payments are due and how much they are supposed to be, as well as any penalties you can incur by being late. You need to keep in mind what sort of grace period for paymentsthe title loan lenders you’re looking at have. Some may give you as much as five days, while others will give you none. Be sure you know which it is you’re signing up with.
Using car title loans is not a good idea. However, if you must use this type of loan, look for a company that is willing to provide you with full disclosure of their terms and interest rates. Shop around, check with your local Attorney General’s Office and watch out for rollovers, theft of equity and high interest rates.