October 27, 2013
Financial duress can lead to desperate measures, with car title loans high on the list of questionable solutions. The basic premise is that you hand the lender your clear car title and a set of keys in exchange for a loan. You’ll keep driving the car and be expected to pay back the loan within a specified period (generally up to a month).
These are not for when the wolf is at your door. They’re not even for when the wolf is already inside and gnawing on your leg. The interest is stratospheric at 200 percent APR or higher; they’re difficult to pay back quickly if you’re already in a bind; and worst of all, you risk repossession. Car title loans may be legal in some states, but that doesn’t mean they’re free of scams like the following.
Upselling. In California, there’s a maximum interest rate for certain loans below $2,500. Care to guess how often folks qualify for auto title loans over $2,500? Consumers in this situation might not take the time to understand the ramifications and jump at the chance for the maximum loan available. That locks them into even higher interest and likelihood of difficulty paying back.
Payback Structure. Initial payments might seem palatable enough, but they can quickly balloon and become near-impossible to keep up. Lenders may allow rollover extensions, but with them come additional fees, compounding the problem.
Repossession and reselling. Rock bottom. When you default on your car title loan, your car gets repossessed (often without warning). That probably doesn’t forgive the loan though. And even if you magically come up with the money, the lender may have already sold your car. So now you’re faced with continuing payments but don’t have a way to get to work.
So how do you avoid car title loan scams? Avoid car title loans altogether. Look at any and all other means available. See what’s available from your credit card company. Try borrowing from friends, family, or even ask for an advance from your employer. To the latter point, even your 401(k) could allow emergency borrowing. Any of these measures might bruise your pride, but they all beat ridiculous interest rates and the added worries of losing your transportation.
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