Car Title Loans Offer Risky Cash

Car Title Loans Offer Risky Cash



Car Title Loans Offer Risky Cash
Payday loans have received a​ lot of​ negative press lately as​ states and municipalities try to​ regulate an​ industry that legally lends small amounts of​ money at​ interest rates that can reach a​ breathtaking 1000% per year .​
a​ less well-publicized variation on​ the​ payday loan is​ the​ car title loan,​ which requires the​ borrower to​ provide his or​ her automobile as​ collateral for the​ loan amount .​
While this type of​ loan is​ not as​ widely publicized as​ the​ payday loan,​ the​ car title loan is​ even more dangerous,​ as​ it​ could cost the​ borrower their car!
Payday loans,​ also known as​ cash advance loans,​ are unsecured loans .​
The lender trusts the​ borrower to​ pay back the​ money within two weeks .​
This type of​ loan is​ risky for the​ lender,​ but that risk is​ more than offset by the​ high interest rates charged for the​ loans,​ which can easily top 400% on​ an​ annualized basis.
A car title loan works differently,​ however .​
With this type of​ loan,​ the​ borrower offers his or​ her car as​ collateral and is​ often asked to​ provide a​ spare set of​ keys when the​ loan is​ granted .​
Should he or​ she default on​ the​ loan,​ the​ car will be forfeited and sold to​ repay it .​
In some states,​ the​ lender may sell the​ car and keep all of​ the​ proceeds from the​ sale,​ even if​ they exceed the​ value of​ the​ loan.
With collateral,​ one would think that the​ interest rates for such loans would be far less than for payday loans,​ but that is​ not the​ case .​
Nationally,​ interest rates for auto title loans average about 300% per year,​ which hardly makes the​ loans a​ bargain .​
In addition,​ the​ loan amounts rarely represent more than a​ fraction of​ the​ value of​ the​ vehicle .​
a​ loan of​ even half the​ vehicle's value would be regarded in​ the​ industry as​ quite generous.
The same sorts of​ problems that occur with payday loans also happen with title loans .​
The borrower is​ often unable to​ repay on​ time and must extend the​ loan by paying an​ additional fee .​
Under some circumstances,​ it​ is​ possible for the​ fees to​ eventually exceed the​ value of​ the​ loan itself .​
And unlike other loans,​ the​ borrower is​ under pressure to​ avoid losing their car.
This type of​ loan is​ overwhelmingly weighted in​ favor of​ the​ lender,​ who will end up with something of​ far greater value than the​ loan should the​ borrower forfeit .​
Those who have short-term cashflow needs would be well advised to​ borrow from friends,​ relatives or​ a​ credit card instead.




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