3 Reasons Car Title Loan Rates are So High

A car title loan allows you to collateralize the equity you have in your vehicle for an immediate cash advance. While secured loans are often less expensive than unsecured loans, car title loans are still expensive for a number of reasons.

#1 High-Risk Borrowers

The loans tend to be very small, just a few thousand dollars, so the borrowers that take them typically have no liquidity. Borrowers without the liquidity to cover a few thousand dollars in expenses often have bad credit or low incomes.

#2 Second Liens

Most people do not own their cars outright. In fact, it is very common to own a car for a number of years and then sell it prior to paying off the debt taken to purchase the vehicle. As a result, any loan taken against the car title in the meantime is actually a second lien loan. If the borrower were to declare bankruptcy, the primary auto loan would be paid off prior to the car title loan.

#3 Cash Advances

All cash advances are costly, and this applies to car title loans. They are costly because cash advance borrowers often default. The borrowers who do not default, then, have to pick up the slack, and they do so by paying high rates.

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