Is applying for a car title loan a good idea?
If you’re strapped for cash and want to earn money using your car, a car title loan is one way to do it. A car title loan is when you put up your car title as collateral in exchange for a small loan of money. When the loan is paid off, you get the title to the car back. But if you don’t pay it, the lender can repossess the car. Given this, is a title loan a good idea?
Most Car Title Loans Have Astronomical Interest Rates
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The short answer is: no, a car title loan, in general, is not a good idea. The main reason you may not want to get a title loan is because of the exorbitant interest rates associated with it. According to Credit Karma, it is not uncommon for lenders to charge around 25% of the loan amount each month to fund the loan.
This means that if you borrow $1,000 at 25% for 30 days, you will have to repay $1,250 at the end of the month. This also means that if you calculate the numbers every year, you will pay the equivalent of 300% APR. This does not include any other fees the lender may charge you.
Also, if you can’t repay the car loan, the lender may repossess your car and you may end up paying even more fees to get it back. If you are unable to recover the car, you may need to find another set of wheels. However, the lender may be able to transfer you to another loan, but that loan will have even more fees. Ultimately, a car title loan is a slippery slope because the astronomical interest rates, numerous fees, and risk of repossessing your car make the idea not worth the money you will borrow. .
Is it still a good idea to get a car title loan?
If you have great credit, no other debts, and are sure you can pay off the title loan as soon as possible, then a car title loan might be a good idea. However, you might not want to visit one of those little “car title loan” or “payday loan” stores that you drive down the side of the road. Instead, check with your local credit union to see that they offer title loans with lower interest rates. This way, you’ll have an easier time repaying the loan and you’re unlikely to get caught in a cycle of fees.
Title Loan Alternatives
Of course, if you can avoid getting a title loan altogether, then steer clear. Fortunately, there are alternatives to getting a title loan:
- Negotiate your debt: Credit Karma recommends that if your need for a title loan is due to outstanding credit card debt, try to negotiate your debt with lenders. This might get you out of the dilemma you find yourself in.
- Apply for a personal loan: A personal loan is generally “unsecured”, which means that it does not require collateral (like your car). Also, interest on personal loans is generally lower.
- Borrowing money from family or friends: If you have family or friends around you who will support you and lend you money, don’t be afraid to call and ask for help. A simple phone call could save you a lot of money and stress.
- Use credit cards: No one would normally suggest using credit cards over getting a loan, but in the case of title loans, credit card interest could be much lower.
Although a car title loan can amount to quick cash when you need it urgently, it’s not always the right answer. The high fees and interest rates outweigh the desirability of obtaining this type of loan. In this case, it may be better to look for alternative options.
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