How Car Title Loans Work
When you need cash, you can use a car title loan to borrow against the value of your vehicle. You go to the lender, settle on an amount you’ll borrow, and agree to hand over your vehicle if you don’t repay the car title loan as agreed.
These loans are called car title loans because you pledge the title (or ownership) of the automobile as collateral. You must own the automobile completely to qualify for a car title loan.
Repaying Car Title Loans
Car title loans are generally short term emergency loans. You’ll probably have to repay the car title loan within 30 days. However, you can sometimes renew the loan after 30 days and pay later. Regulators generally limit the number of times that a car title loan can be extended.
Car Title Loan Interest Rates
High interest rates are one of the biggest drawbacks to car title loans. Much like payday loans, you can end up paying extremely high rates for car title loans. Due to the high interest rates, car title loans generally have special rules in each state that limit how much trouble you can get yourself into. Because you are pledging your vehicle as collateral, it’s possible that you’ll get a better rate than other unsecured loans, but car title loans are not cheap.
Losing Your Car
Another major problem with car title loans is that you can lose your vehicle if you don’t repay as agreed. The lender has the right to take your car and sell it to collect their money. If this happens, you may end up in an even worse position - you might not be able to get to work and earn the money you need.
To avoid major problems, investigate alternatives to title loans before you use one.