Car Title Loans – How They Can Destroy Your Life

blue toy car

I know how it is sometimes. It seems like no matter how hard you try you can’t get ahead, and just when things are as bad as you think they can get, something else happens to make them just that much worse. An emergency pops up and you start thinking about car title loans as a way out of your financial situation.

Well, before you take the plunge, you need to understand a few things about car title loans and how they can destroy your life.

Let’s face it, anyone can find themselves in a tough spot where they don’t have an emergency fund and don’t have a credit card to use to deal with an emergency.

You need money quickly to deal with a medical emergency or need a new water heater or something else that you can’t live without breaks down or stops working altogether.

The Ugly Side of Car Title Loans

The problem is that while things may seem bad, once you step into the murky waters of this type of credit, you’ll quickly start asking yourself, are car title loans worth it? No, they’re not.

First off, 93% of people that get a title loan end up losing their vehicles. Think about that. If you decide to get a title loan, you only have a 7% chance of keeping your car or truck.

People are lured to this type of loan because care title loan requirements make it really easy to get one.

Have a newer model car that is paid off?

Great, here’s your money.

Too many people don’t take the time to read the fine print.

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How Does a Car Title Loan Work?

Most of the time, you can get car title loans online. You fill out a quick form that asks for your name, address, social security number, telephone number, and some information about your vehicle.

That’s then sent to the company, and they give you a call to come on down.

I’m sure you’ve seen these places. I know that there are two car title loans near me, and I live in a town of 9,000 people!Once you’re at their place of business, they look at your car and then have you sign the paperwork.

It’s really that easy to get car title loans, but the real issue is that when you are desperate for money, you don’t pay a lot of attention to the details.

By law, these places are supposed to tell you the interest rates you will be paying, but when you’re signing on the dotted line and walking out with a couple of grand who cares right?

That is until you must start making payments…

How Much Do Car Title Loans Cost?

Here’s where it gets really ugly. The interest rates on car title loans can be as high as 500%. Yes, that’s right.

These loans average a 25% interest rate PER MONTH which is an annual interest rate of 300% and this can go as high as 50% per month.

In addition, these loans are typically for only 15 to 30 days. What happens is that when the loan term is up, and you can’t pay the loan and interest rate in full, they end up rolling over the loan into a new loan.

This rollover may seem helpful, but it adds additional fees and interest.

To put this into perspective, let’s say you got a $500 title loan with an interest rate on the low end of the interest rate spectrum at 25%, and this loan is for 30 days.

front of an old car

That means at the end of 30 days you would have to pay back $625, $500 for the loan, and $125 in interest.

Well, what if you don’t have the $625? This loan company is so nice it will allow you to pay only a portion of the loan back.

So you pay say $125 and then the balance of $500 is rolled over into the next month plus the additional fees they will add on.

You will have another 30 days to pay back $625 plus fees. If those fees are $50, you now will owe $675.

This cycle can continue until you have paid more in interest and fees than you borrowed in the first place. Unfortunately, this can lead to repossession.

Car Title Loans and Repossession

Car title loans come with another nasty little surprise, repossession. Most of these companies install a GPS tracking device on your car, so they will know exactly where it is at all times.

In addition, they may put a starter interrupt device on your car.

This device won’t allow you to start the car if you haven’t made your payment

Think about that.

Again, as I mentioned, studies show that 93% of people that get car title loans get their cars repossessed.

Once they repossess your car, they will sell it.

In many states, they can keep the full sale price and don’t have to give you the amount over what you owe them.

Now, not only do you have money issues, you have no way to get to work to make money to pay your bills, or to drive your kids to school, or run all the daily necessary errands we all have.

Your life just got a lot tougher.

Alternatives to Car Title Loans

I know what you’re thinking. Okay, these are bad loans, but I still need cash right now to deal with my situation. The good news is there are alternatives.

  • Personal loans – A personal loan is a non-secured loan, meaning you don’t use your car or home or anything else to get the loan. There is a range of loans for people with good and bad credit. The interest rates start at about 5% annually, and as these are installment loans you typically have a year or longer to pay them back, so there’s no rollover or additional fees.VW parked on side of the street
  • Bad credit loans – If your credit is such that you can’t get a typical personal loan, there are other companies that will give you a loan. These are also non-secured loans, so you don’t use your car, home, or bank account (like a payday loan which is super bad as well.)

You will pay a much higher interest rate with these loans, but again, they are installment loans, so you’ll have longer to pay them back with no rollover as well.

Just be careful here and watch the interest rate you are being offered.

The bottom line is that things happen.

It’s best to have an emergency fund to deal with unexpected issues, but sometimes that’s not always the case.

If you can’t borrow from friends or family, consider a personal loan first and then go from there, but whatever you do, stay away from car title loans and payday loans.

They will cause you nothing but misery.

My advice is to do what you have to do for now but then work like crazy to get at least a $1,000 emergency fund saved.

That way when you find yourself in a tough situation again, you will have a much easier way out.

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