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About Loan Against My Car
Car title loans provide a rapid approval alternative for a short-term loan, but they are typically highly expensive. To obtain an auto title loan, you must offer your vehicle as security by handing over the title to the lender until the debt is fully paid off.
If you don’t have any other options, such as if you need money right immediately for emergency medical treatment, a title loan may be a good option. However, in most circumstances, these loans are more expensive than they are worth, and if you take one, you risk losing your car.
How Car Title Loans Work
To borrow against your car, you must have enough equity in your vehicle to fund a loan. Many lenders require that you have paid off any other loans used to acquire the vehicle, but some will let you borrow even if you are still paying off a normal auto purchase loan. These loans can range from $100 to $5,500 on average.
The amount you can borrow is determined by the value of your car or the equity you have in it. The higher the value, the more money you can get. However, don’t expect to get the whole worth of your automobile out of a title loan. Lenders want to make it as easy as possible for themselves to recover their money, so they only lend what they can quickly and cheaply recover if they have to repossess and sell the vehicle. Most lenders offer loans ranging from 25% to 50% of the value of your vehicle. They may also put a GPS tracking device on your vehicle to prevent anyone from hiding the vehicle rather than paying off the loan.
While storefront lending organizations can provide auto title loans, you may also be able to borrow against your vehicle through your credit union or bank.
Repaying The Loan
Title loans are short-term loans that are typically payable within 15 to 30 days. That means you’ll have to come up with the funds for full payback, known as a balloon payment, as soon as possible, which is rarely as simple as you’d think. You may be able to extend repayment in some situations by “rolling over” the loan.
Rolling Over
Instead of repaying the loan, you might obtain a fresh 30-day loan. Rolling over, on the other hand, becomes a very expensive way to borrow, as you must pay fresh loan fees each time you do it. State rules can sometimes limit whether or not you can roll over.
Interest Rates
You may notice that your lender charges 25% interest for one month, which may not seem that horrible. If you were to continue that loan for a full year, the annual percentage rate (APR) of interest would be almost 300 percent.
Total Costs to Borrow
Title loans have substantial fees. Lenders typically charge greater interest rates than credit card companies. Interest rates are frequently limited by state laws, but these limits are still fairly high. Furthermore, you often pay fees to obtain a title loan, which raises your cost of borrowing. Even though the cost isn’t labeled “interest,” you’re still paying it because it’s included in the loan balance. Title loans, like payday loans, can require you to repay several times what you borrowed, resulting in a hefty cost to meet your demands.
Losing Your Car
One of the most serious issues with title loans is the possibility of losing your car. According to a Consumer Financial Protection Bureau research published in May 2016, one out of every five borrowers had their vehicle repossessed. If you are unable to make payments, the lender may repossess the vehicle, sell it, and keep a portion of the proceeds. In many circumstances, lenders keep the entire amount of sales earnings because that was the resell value of the car.
When your car is repossessed, things can quickly spiral out of control. You might not be able to get to work and keep earning money. It will take significantly longer to go to and from work. This longer commute lowers your quality of life since it makes it more difficult for you and your family to fulfill daily responsibilities like shopping and getting to school. Don’t put your car on the line if you don’t have to.
Alternatives to Title Loans
Before you get a title loan, look into your other options. The solutions listed below may not be appealing, but they may be preferable to collecting cash for your title.
- A personal loan If you need to borrow money, this may be your best alternative. You do not need to pledge collateral, and you may be able to secure a lower interest rate. Inquire with your bank or credit union about borrowing with a longer-term loan.
- Credit cards are rarely a wise way to borrow, but they are unsecured loans with no risk of repossession.
- Extra income may also help you get through a hard patch. You will most likely come out ahead if you can take on another employment, even if it is only for a short time. The extra labor may not be pleasant, and it may not even be possible, but it is worth considering.
- Cutting costs is easier said than done, but if temporary compromises get you through a hard stretch uninjured, that’s certainly the preferable alternative.
- Downgrade If you have a more expensive car than you need, you should sell it. You might be able to make some money by selling that car, getting something less expensive, and pocketing the difference.
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