Over the past few years many people have started using loans such as subprime mortgages to home equity loans. Truth is, loans have the power to pull someone down into a pit of debt if they are not careful. However, there is one loan that is becoming more popular which has the strong potential to put you in debt. This is known as the car title loan.
So what is a car title loan?
You may be thinking that this is the loan you take out in order to pay for a car. However, this is not so. A car title loan is very similar to a home equity loan. This loan is used for those who are in need for some quick cash. You can take out a loan using your car title as collateral. In doing so the lender will take the title to your car until you have paid off the loan in full and most of the time will even take a copy of the key in order to reposes the car if the payments are not made.
The danger to this is that the majority of people obviously need their car. If they are unable to pay off the loan, they will lose their car and in turn will not be able to transport their family and will face difficulties in getting to work.
Even if you are able to pay back the loan in the allotted amount of time you are going to be charged heavily in interest rates. The Center for Responsible Lending reported that a person that takes out a car title loan can expect to pay 300% back in interest. So if you were to borrow $950 dollars and it takes you 10 months to pay off, you will pay a grand total of $2,140.
So how do you avoid a car title loan?
The easiest way to avoid a car title loan is simple, tell yourself no way every time the thought crosses your mind. It is good to decide not to take out a car title loan before you ever need it. You are likely to stumble upon loads of car title loan advertisements in the future and it is best to already have made up your mind not to go down this path before you are in financial need.
A report released by NBC News stated that two of the largest loan companies out there are title max and loan max. Title Max has over 1,000 stores nationwide alone and gives out thousands of loans each day.
Paying off a car title loan
Okay that is all good and all, but what if you already have a car title loan? What now? Don’t worry, all hope is not lost. The best method for doing so all depends on your current financial situation. For instance, if you have a good credit score then you have many good options to choose from. Try taking out a consolidation loan in order to replace your car title loan. Just make sure you are using a reputable company, such as, your local credit union or your personal bank.
Another thing to consider is to re assess your budget. Move some money around in order to put more money towards paying off the loan, the sooner you pay it, the less you will be charged in interest fees. In order to do this you must first take into consideration all the necessary payments you have to make, such as, your house payment, food, cell phone, electricity, etc. After having done this look for what extra money you have from your monthly income and use as much of this as possible in order to pay off the loan as quickly as possible.
Finally, the last step I have to offer is to downgrade your car. If you absolutely have no way to repay your car title loan it would be better to down grade rather than lose the car all together. You might be wondering how exactly this is going to benefit you, well let me break it down for you. If you own a car that has an estimated worth of $10,000 and you used the title in order to borrow $2,000. If you sell your car for the estimated price then you are sure to have enough money in order pay off your debt. You can then use the remainder of the cash to purchase a new car of lesser value. The only complication here is that the lender most likely has your loan, so you will have to discuss this option with them before you are able to follow through.
Whatever you decide to do, just remain focused on getting your loan paid off quickly in order to avoid those incredibly high interest rates.