The quick and easy access to cash that title loans offer can help people in a financial emergency. However, the loans can be costly if borrowers fail to repay them on time. The high interest rates, fees and repayment terms can trap borrowers in a cycle of debt that can be difficult to escape from. Ultimately, people need to review their options and consider alternatives to title loans before taking them out.
With a title loan, you borrow against the value of your car. You typically hand over the car’s title to the lender in exchange for a lump-sum payment and have 15 to 30 days to repay the principal and interest charges. Failure to repay the loan in full within this short period results in a default and could lead to repossession of your vehicle.
Unveiling Title Loans: What You Should Know
If you’re unable to pay your loan back on time, it’s common for lenders to roll over the balance into a new loan, charging additional fees each time. Some lenders may even install a device called a kill switch on your car to prevent it from starting, making it easier for them to repossess it. The CFPB says more than half of all payday, pawn and auto title loan borrowers still have outstanding debt six months after they take out their initial loans.
While there are no federal regulations governing title loan companies, you should always choose a reputable lender with good credentials and a history of complying with state laws. Find out which licenses and registrations your lender needs to operate in your state, and ask them to provide you with proof of these documents. If they’re hesitant or unwilling to provide this information, that’s a red flag.