Pros and Cons of Auto Title Loans

Auto title loans offer an easy way to get the cash you need in a hurry. As is true of any loan product, there are clear pros and cons to car title loans. Before you sign the paperwork, it's essential to understand the risks and rewards.

Start With the Pros of a Title Loan

There are three clear pros to taking out an auto title loan. The money is in your hands quickly. In fact, some companies will deposit the cash to your bank within one business day. If you have an urgent bill to pay, having the cash in hand within a day is extremely helpful.

With a clear title, auto loans of this nature let you put your car up as collateral. You borrow against the equity in your car. If you fail to pay back the loan by the due date, the loan company takes possession of your vehicle. This eliminates the need to undergo a credit check or wait for underwriting to go over your loan paperwork and approve your loan. If you have poor credit, you'll still qualify for the loan since a credit check is never required.

While you put your car's title up as collateral, your car is still yours. The only way the title loan company will ever take possession of your car is if you fail to pay the loan back as promised. Make sure you pay the full loan amount back, plus any fees and interest, and there's no risk of losing your car. You can drive it while the loan is in place, too.

Now Carefully Weigh Those Benefits Versus the Risks

Typically, as long as you understand the repayment terms with your auto title loan, you won't run into any risks. There are a few things you should consider before taking out a title loan.

First, if you fail to pay your car title loan as promised, your car will be repossessed. Once this happens, you must have the cash in hand for the money you owe. Plus, many find themselves responsible for towing fees and storage fees too. If you make no effort to get your car back, your car is going up for sale or auction. Title loan companies do this in order to get back the cash they loaned you. If your car ends up selling for less than the amount you owed, you may find yourself liable for the difference.

Second, the interest rates on auto title loans are high, much higher than a credit card or personal loan. According to the Federal Trade Commission, the average APR is 300%. If you borrow $500 for 30 days, when you pay it back, you must add in $125 in fees and interest. If you don't have $625 when you go to repay, you risk losing your car. The only way around it is to roll your original loan into a new one, which increases the amount you owe in fees and interest.

Before you apply for auto title loans, look into other options. Sell unused items on sites like Craigslist. Talk to your bank about an unsecured loan. See if your employer offers paycheck advances or lets you cash in unused vacation time. Finally, talk to your friends, family, and pastor about the possibility of borrowing money for a short amount of time.