Should You Really Consider a Car Title Loan?

The name of the loan sounds deceiving. Car Title Loan. One would think that a car title loan would be a loan where the lender holds the title to the automobile you've chosen while you pay your vehicle off. Guess what? All lenders do that. Any loan where you're using your car for collateral will require that the lender hold the title for the term of the loan.

With a car title loan, the idea is that the borrower needs short term money, therefore a short term loan. Car title loans are in the same league as quick cash loans and frequently have annual interest rates that climb into the triple digits. One well known Title pawn agency claims to charge 50% less than other title pawn agencies, however, on a $2500 loan, a person's first two payments would be around $275. Those first two payments cover only interest and fees. For the third payment, there is a requirement of 5% of payback, which comes out to an additional $115. To simply break down the numbers and percentages, this type of loan can cost you almost $10,000 on an original loan of $2500 over a period of two years, which is about how long it will take to pay it off.

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If you're still wondering though, there are some things you need to know.

- You need a clear car title in your name. Your vehicle is your collateral and will be appraised. Your loan amount is based on the value of your vehicle. If you don't pay your debt, your car can and will be repossessed.
- If you don't make enough to cover monthly payments of $300-$500 for about two years on a $2500 loan, you should not consider a loan of this kind.
- There are no credit checks and they do not report to any credit agencies.
- You need a state issued id and must be at least 18 years old.
- You retain the use of your car while you are paying off your loan and certain agencies do not require that you have insurance.
- Car title loans are short term, 30 day loans, with the terms renewing every 30 days, which is how the lender continues to charge fees.

A responsible lender would never endorse this kind of loan. While it can be a quick fix if you need the money fast, you can also get into trouble if you're not planning to pay the entire amount back within 30 to 60 days.

Don't confuse a car title loan with a legitimate type of loan to purchase a vehicle. A car title loan is not a viable form of financing a vehicle for most people, because the payments are typically through the roof and far exceed the value of the car.

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