Title loans often have high fees and short repayment windows.
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Title loans use your car as collateral, meaning the lender can repossess your car if you don’t pay.
Title loans often need to be repaid within 15 to 30 days and charge interest rates around 300%.
Alternatives to title loans include credit cards, personal loans, side gigs, and local charities.
A title loan is a short-term high-interest loan that uses your car’s title as collateral when you borrow money. That means the lender can repossess your car if you don’t pay back your loan on time. Many title loan lenders don’t consider your credit history at all when making lending decisions.
If you’re in a bind, have poor credit, and need money fast, a title loan may seem to be an attractive option to get your cash. But title loans come with significant downsides. Title loans are risky because they charge high fees and you’re at risk of losing your car if you fall behind on payments.
Title loan lenders generally target borrowers with low credit scores or minimal credit history who can’t qualify for lower cost loans elsewhere.
“In an ideal world, nobody would be taking out a title loan,” says Evan Gorenflo, senior financial advisor with the personal finance app Albert. “It’s not something that you typically connect with getting ahead or a financial goal. It’s more designed to help you out in a desperate time.”
What’s the cost of a title loan?
Title loans generally have interest rates equating to 200% to 300% APR. A title loan usually has a better interest rate than a payday loan, which can carry an APR of 400% or more. However, its rate is significantly higher than personal loans or credit cards, which usually have maximum APRs around 36%.
“Title loans are tricky because a lot of people rely on their car for making money,” says Gorenflo. “In this situation, you’re giving up your title as collateral. Sometimes you’re giving them a second set of keys to your car, they put GPS in your car in some cases, so you’re making it really easy for them to impound your car if you’re unable to pay this back.”
How much can you borrow with a title loan?
The range you’ll be able to borrow depends on your individual situation, but generally …read more
Source:: Business Insider