Are Title Loans Right for You: Benefits and Risks to Consider
Title loans allow you to borrow money against the title you hold on your vehicle. These are short-term loans designed to be paid back as quickly as possible. Your car's resale value determines the maximum loan amount. To secure the loan, you temporarily sign over the title to your car. While title loans are not the best choice for everyone, they can be helpful to people who do not qualify for bank loans or who do not have the time to waste while waiting for a bank loan to clear. There are risks and benefits to any title loan that you should consider before applying for one.
Title loans allow you to borrow money against the title you hold on your vehicle. These are short-term loans designed to be paid back as quickly as possible. Your car's resale value determines the maximum loan amount. To secure the loan, you temporarily sign over the title to your car. While title loans are not the best choice for everyone, they can be helpful to people who do not qualify for bank loans or who do not have the time to waste while waiting for a bank loan to clear. There are risks and benefits to any title loan that you should consider before applying for one.
Need Versus Desire
If you're looking to borrow money to fund something you do not really need, you should reconsider your plans. The risks that come with title loans make them something to really think about. If you suddenly cannot pay as promised, you risk losing your vehicle. This doesn't mean that you should avoid title loans completely, as there are valid reasons to consider them.
If something goes wrong in your house, such as your furnace dies in the middle of winter or your well dries up leaving you without any running water, it can take weeks if not months to secure a personal or home equity loan. This is time you do not have to waste. By taking out a title loan, you can get the money in a day or two, get the necessary repairs made, and then pay off the title loan as soon as your bank loan is finalized.
Understanding Interest Rates on Title Loans
Interest rates for title loans are high. Some title loan companies charge interest rates of 10 percent per month, breaking down to a whopping 120 percent annual percentage rate. The interest starts building up at the end of the first month. If you can pay off the loan at the end of that first month, it will save you a lot of money.
If you take out a $1,000 loan with a 10 percent monthly interest rate for 12 months, you would pay almost $150 a month. At the end of the year, you've paid more than $1,750 to borrow that $1,000. Pay the money off in a month or two and you save a bundle. Title loan companies cannot penalize you for paying off your loan early.
Missing Payments
If you miss payments on your title loan, the best case scenario is that your payments and interest balloon and become much larger. If you miss too many payments, your vehicle will be repossessed. If you know you cannot make a payment, it is your responsibility to ask for an extension. Title loan companies will work with you to help make sure you pay the money back, even in times of hardship.
