The Basics of a Car Title Loan

Sometimes, desperate times call for desperate measures: this is the only time people turn to a car title loan. Essentially, a car title loan is a source of quick money for borrowers by receiving a loan using their car as collateral, but title loans astronomical interest rates have left many victims of car title loans monetarily crippled, swimming in unnecessary debt, and even suffering irreversible impounding of their vehicle. 

Generally, car title lenders will require loan borrowers to have a clear car title before issuing a loan. Then, based on the car’s value, the lender will determine how much of a loan can be lent. However, this value-to-loan ratio is never more than 30%, giving a win-win advantage to the lender and a lose-lose disadvantage to the desperate borrower. 

These loans are generally for small amounts of money, ranging from $500-$950, but due to the 25% interest rates, you will, on average, be paying triple the loan amount just in interest. 

What makes these loans dangerous is the never-ending debt, and, even worse, suffering the loss of your vehicle, which could be the most valuable possession you own. Despite losing the car value, if the loan was defaulted to impounding, the borrower also suffers from the inability to transport themselves to their job, and in return earn a paycheck, and in return pay their bills. 

Thus, it is easy to see how the long-term consequences heavily outweigh the short-term benefits of a car title loan. 

Despite these drastic consequences, car title loans are quite popular in the United States, and lack of regulation on the state and federal levels has lead to corruption and abuse of the system. 

It is highly recommended that you weigh out all other potential options before resulting to a car title loan. 

Sources: Bank Rate

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