Auto Title Loan
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Auto title loans are short term loans, usually for no longer than 30 days, with a car title used to secure the amount borrowed. This means that if the owner can't or won't repay the debt, the lender may take the car and sell it to get the money back. An auto title loan usually attracts people with bad credit, low income people and the elderly. The money made from this type of lending is from the high interest rates and the repossession of the cars.
To obtain this form of lending, one must have a clear title, liability insurance, be currently employed and at the current residence for more than six months. Most auto title loans from these lenders are between $601 dollars and $2,500. The reason for the $601 figure from the lenders is that if the amount is over $600, they can charge high interest rates. The normal interest rate is twenty five percent.
If at the end of the 30 day repayment period, the borrower cannot repay the auto title loan, the lender will accept the interest payment and allow the debt to rollover for an additional month. If the amount lended was for $600, the interest payment would be $150. If interest rates only are paid on the auto title loans, one would still owe $750 the next month. It is possible for borrowers to make substantial payments over a period of time and still lose the vehicle.
This type of lending is typically made for a fraction of the value of the car so as to protect the lender. Some states allow the lenders to keep the excess on the sale. Although when procuring such lending, the amount should not be more than the fair market retail value of the car. This is determined by common industry appraisal guides. If one feels the need for an auto title loan, it's best to protect themselves by first checking the NADA or Kelly Blue Book value of the vehicle.
These loans are simply high interest debts where the effects can be devastating if car owners are unable to repay the debt on time. Consumers can end up paying high interest and lots of money and still lose the vehicle. It's wise to look at other options first. "Wisdom is before him that hath understanding; but the eyes of a fool are in the ends of the earth" (Proverbs 17:24). If at all possible, before seeking out what sounds to be a simple, quick fix with an auto title loan, consumers should seek out other sources that offer a lower interest rate. They may be placing the vehicle at risk and could be trapped into a vicious cycle of debt.
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