The Worst Advice We’ve Ever Heard about Title Loans

published Aug 09, 2018
3 min read

Car in the City

Title loans are an appealing method to get money fast when you have no credit. If you own a car (truck, motorcycle) and need some cash for unexpected expenses, you can solve your money problems with help from lenders.

Basically, you secure your loan using your car title – which means you’re handing over the ownership of the car until you pay back the loan. However, in most cases, you can still use your vehicle, as the lender won’t take it unless you miss payments.

It’s not a very wise method to get money, but generally, title loans cost you less than your local Los Angeles payday loans, when it comes to interest rates and fees. As with all loans, you risk spending a lot to pay off debt. In this context, choosing the right lender to take money from is essential for your financial future.

Since car title loans have become a popular method to get money, more institutions are ready to promise you quick solutions to your problems. But, you need to make sure you read well terms and conditions before signing any agreement. And that you don’t rely exclusively on the information you get from lenders when making your decision.

Here’s a some of the worst advice we’ve heard about title loans. And some answers to counter them.

It Doesn’t Matter that You Already Have a Low Credit Score

Car title loans don’t require a credit check because they’re secured. So, the fact that you have no credit doesn’t matter to car title lenders. If things go wrong, you can ask for renewals or leave the car. In both situations, lenders get their money back in a way or another.

However, it should matter to you. For example, if you have a small or medium trucking business, and you’re suddenly in need of cash, you can use title loans for commercial semi trucks to deal with urgent financial problems. It’s the easiest way to cover repair costs. You get to put your damaged truck back on the road faster and make more money for your business.
But, if you can’t pay, you risk losing your vehicles. And you’ll have no meanings to go on with your activity. So, if you’re already struggling to pay your debts, you should look for cheaper alternatives.

You Can Get a Car Title Loan with Any Vehicle

Things vary from one lender to another. Some accept cars not older than 10 years, while others give you a loan for a car manufactured in 1996. Plus, you need to be able to prove that you’re the owner of the car.

Check the terms of the lender before applying for a loan. In some cases, lenders even ask for a check-up of the vehicle before signing you the check.


You Always Get to Make Payments on Principal

When you get a car title loan, you’ll have to pay both the interests and the principal to pay off debt. As interest rates for these types of loans can be as high as 300%, for a $500 loan, you can pay up to $1,111 in interest.

If you don’t pay attention to your contract, the lender can have you pay interests only. This way, you continue to have a high principal balance of the title loan amount. Which means you’re not actually clearing any debt.

Read well terms and conditions before signing the agreement, to make sure your payments cover both interests and principal. This is the only way in which your debt will become smaller with every payment.

Longer Repayment Periods Are Better

Longer repayment periods are comfortable because you get smaller monthly payments. But this is just an illusion. In the long run, you’re just paying a lot of extra in interests and monthly fees.

Taking a loan for 30 days only is the less expensive solution. But, you need to be sure you can pay off debt at the end of the month. Most of the times, this isn’t happening. As much as 83% of those who choose a single-payment loan are forced to extend it. Furthermore, half of them recycle the loans an average of 10 times before paying off debt (or losing their vehicles).

Ask your lender to give accurate information about APR (annual percentage rate) and the amount you’ll need to pay to clear your debt. When you have the actual numbers in front of you it’s easier to make wise decisions.

Another important element to check is the existence of a prepayment penalty. If you think you could get money from a different source before the due date, you should check whether the lender will allow you to pay everything right away, without adding any costs.

A Lender’s License Is Valid All over the Country

Most states in the US forbid car title loans due to the fact that they put people’s jobs at risk. 1 in 5 borrowers loses the vehicle when securing a loan with their cars. Authorities in many states consider the car essential to commute to work, so they outlawed title loans to prevent people from losing their cars and eventually their jobs.

Car title loans are legal in 17 states, each with specific laws and regulations. So, if a lender has a license for Mississippi, it doesn’t mean it can operate in California. Check the company’s background before signing any contract. Look for online reviews or ask for recommendations from family or friends, to make sure the lender is trustworthy.
Car title loans are not a long-term solution to your financial problems. They can help you get some money quick, but you can’t use them as a permanent source of extra cash. Furthermore, make sure you’ve eliminated all other options before signing a contract that can make you lose your car. And, if you have no other solution but to contract a title loan, choose a serious lender.