I am counseling a single mother with three children living on approximately $600 per month. Once we had assessed her situation, something financially crippling about her obligations was that she had recently taken out a car title loan. What is a car title loan? In a nutshell, in my opinion, it is a bad deal for the customers. Needless to say, I am not an advocate of car title loans or payday loans.
While the industry portrays their product to be fast and easy, and this is true. However, the fine print in various advertisements and in store contracts are perhaps not read in its entirety or understood by the customers. I have listed three obvious reasons why car title loans are a win, win for the lenders and guess what, the customers are left in a precarious position should they default on the loan.
- Car title loans are usually acquired by individuals that cannot be approved for a loan from a bank, have unfavorable credit and need the cash yesterday.
- The lender’s monthly interest charge is approximately 25% which can equate to approximately 300% over a 90 day period (carsdirect.com, 2014). That is an enormous amount of money that could be deposited into your own savings account during this time.
- Should the customer(s) default on the loan, that they no doubt could not afford in the first place, the lender will repossess the vehicle and sell it. It gets worse, the customer(s) could be liable for the balance owed if the car sells for less than the loan amount granted. This is a bad deal!!
For those of you that are saying, well I acquired a car title loan, the lender held my title, I paid the loan off and have my title back, that’s great. This is risky business! However, I am bringing awareness to those that are thinking about applying for this kind of loan without the ability to repay or discipline to do so within the time frame required. Many different things can happen in anyone’s life that could bring them to a place of desperation; I am suggesting that you take EXTREME precaution and make sound decisions before signing on the dotted line.
Above all do not be blinded by the FAST CASH, MONEY NOW hooks; consider seeking a trusted professional for guidance before making your final decision. Imagine going outside to get in your car to go to work and it’s not there; that could be the end result if the lender does not receive payment on time. The moral of this story is that you could be inadvertently selling your vehicle, giving the money away, then paying the lender for selling it. Right, this is confusing and doesn’t make sense.
I am suggesting that customers STOP taking the bait. Whatever the situation, you can work through it, seen and unforeseen. No one knows your situation better than you and the decision is yours. However, you MUST STOP DIGGING!
E-mail me at email@example.com or feel free to leave a comment.
I honestly think if you do the research and carefully plan for it, car title loans can be a good idea. I called several different car title loan companies and come up with a decent payment plan. I paid mine off in about 4 months.
Thank you for your response. Sounds as though you are quite discipline with your financial affairs in the sense that you mentioned planning for repayment. Unfortunately, unforeseen situations and most of the time failing to plan derails a balanced budget. There are a couple problems on this subject that some law professors and attorney’s have assessed is that car title loan contracts are very complicated. Some state regulations could be improved and other states have banned them.
300% interest on any loan is not a good deal for any customer for short-term gain. An individual would be better off changing their behaviors, getting to the root of how they arrived at the place that caused them to take out a car title loan, than sign the contract. I do recommend anyone that is considering a car title loan to do their due diligence as you have suggested and make the right decision that works for them.
Thank you Mark and congratulations on successfully getting out of the grip of a car title loan.