Predatory Lending Practices: Car Title Loans

Car title loans are frequently used by those in desperate situations. The car title loan industry has received a lot of negative attention for predatory lending practices. Here are a few reasons that you should stay away from car title loans.

Interest Rates

One of the biggest reasons that you should try to avoid dealing with car title lenders is the interest that you will pay. The interest rates associated with car title loans are extremely high and could be considered usury. Since the loan is typically for only 30 days, you might not think that the interest rate is that high. Many people are so desperate that they will gladly agree to any interest rate that is put in front of them. However, when you take the time to calculate the rate, it comes out to as much as an APR of 300. Therefore, you are paying an unbelievably high rate of interest compared to that on almost any other type of loan. If faced with the possibility of using this type of loan, you need to decide if paying that much interest is worth getting access to the money that you need.


In addition to unbelievably high interest rates, car title loans are also known for excessive fees. At the beginning of the loan, you may have to pay a fee that is referred to as a processing fee, application fee or origination fee. If you are ever late on making a payment, they will also charge you a significant amount for a late fee. With these loans, you can eventually end up spending more money in late fees than you borrowed for the loan. Therefore, if you do decide to get this type of loan, make sure that you make your payments on time. Otherwise, you could be faced with a very long-term debt problem.

Disproportionate Loans

Another problem with these types of loans is that you are often putting up much more collateral that is required for the amount of money that you are borrowing. In order to get a car title loan, you have to agree to hand over the title to your car. You also have to be able to prove that you have the car paid off and that there are no liens on the title. If for some reason you cannot repay the loan, they have the right to take your car. They can then sell the car and keep the money. The problem with this scenario is that the value of your car is typically higher than the amount of money that you are borrowing. Therefore, if you do not repay the loan, the lender is going to come out ahead with this deal. This means that you are risking significantly more than you are receiving. If you decide to go ahead and pursue this type of loan, make sure that it is worth the risk of losing your car and all of the money that you have put into it.

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