Make no mistake—a car title loan isn’t like an auto loan. An auto loan is something you obtain to purchase a vehicle. On the other hand, a car title loan is something you obtain by putting your vehicle on the line. Even in times of financial crises, it is never a good idea to take out a car title loan. It should be the last option, that which is only considered when all possibilities have been exhausted.
Introducing Car Title Loans
A car title loan is different from an auto loan because the borrower’s ability to repay is not the lender’s main consideration. Rather, it is the value of the vehicle. Car title loans are taken out by pledging one’s car as collateral in exchange for cash. When you take out such loan, you borrow against your vehicle’s value. The lender will assess the price of your vehicle and offer you an amount based on its estimated value. In the transaction, you will give the title of the vehicle to the lender. It will only be returned after you have repaid the loan in full.
Because this type of loan requires you to hand over the car title to the lender, you can only qualify if you own the vehicle. You will not be eligible for a car title loan if you have yet to repay the auto loan in full.
Why Car Title Loans Aren’t Recommended
Car title loans are not recommended—and for several reasons. First, these come with exorbitant rates. Interest charged to these loans are much, much higher than bad credit auto loans and even credit cards. The annual interest rate is typically a three-digit figure.
Second, car title loans are short-term loans. Unlike auto loans that can be repaid in 2 to 8 years, these have a repayment period that spans 30 days. The loan, its principal plus interest, has to be repaid in a month. Considering the steep rates and short term, it is easy to see how difficult repayment can be for borrowers.
Another reason car title loans are not a good idea is because their conditions make losing the vehicle almost inevitable. If you are unable to make payments, the lender has the right to take the vehicle. Without a car to transport you to and from work, you are more likely to end up in a worse financial situation.
What to Do If You’re in Need of Money
So if you are a Bostonian and you find yourself in a financial bind, the last thing you should think about is getting a car title loan. If you paid for the vehicle through financing, remember how much money you invested in the purchase. Don’t give up your asset for cash worth less than said asset, no matter how crucial that cash might be for your current situation. Instead of pledging your vehicle’s title to a creditor, seek other sources of money if you don’t qualify for traditional ones. You can lose even more money if you let go of the vehicle.