By David Pilley on September 14, 2010
.jpg.aspx?width=75&height=75) By now, you should be familiar with the term collateral, a security that may be used to pay off a debt if you don’t have enough money. A car title loan, therefore, is a loan you can receive by using your vehicle as collateral. Before deciding on getting this type of loan, though, you need to do some research so you don’t end up losing more than you can afford.
If you don’t know the value of your car, then don’t even consider this type of loan. Two trusted companies to look at when determining the value of your car are Kelley Blue Book and the National Automobile Dealers Association (NADA). If you know the value of your car, you’ll be able to see if the title loan you’re trying to get is a fair deal.
If you’re renting a car, then you can’t get this type of loan. You have to have a car title, meaning a legal document issued by your DMV showing you own the car. If you’re getting a title loan, not only do you need proof of ownership, but you actually turn over the title to the lender. When filling out a form for a title loan, you’ll also have to list some information, like your employer and proof of insurance on the car, but actually giving your lender the title to your car is the most important part. This secures the debt, and if it is not eventually paid back or if a payment or two is late, the lender can repossess your car. While all title loans require you to give the lender your car title, some lenders may also request accessories. You might be asked for an extra car key or even the installation of a GPS device (to make repossession easier, of course). If you are not comfortable with someone else in possession of your car (someone you really don’t know that well), you should steer clear of a car title loan.
In regards to the interest rate, title loans are similar to payday loans. With a title loan, a lender gives you an amount of money that is equivalent to a portion of how much your car is worth (often about half the total worth of the car). If you are making monthly repayments, there can be an exorbitant amount of interest. (A monthly rate of 30%, meaning an APR of 600%, is certainly not unheard of.) Make sure that your payment plan is amortized, or having an equal amount of money to repay each month. If you don’t have an amortized payment plan, you should not consider a title loan because the interest will keep growing and you could be at higher risk of losing your car.
There are few regulations on title loans (we’re talking in a couple of states), so if you are uncomfortable with pages of fine print and you fear getting in debt even further, you might want to look for a different type of loan.
Note: Refinancing your car with a credit union or bank is ALWAYS a better option than getting a high-interest title loan. Not all applicants will qualify due to credit rating requirements. |