Alabame Circuit Court holds 300% auto title loans illegal

Alabame Circuit Court holds 300% auto title loans illegal.

That is one of the headline decisions by an Alabame Circuit Court after a recent report on Tennessee title loans. Car title loans are a relatively recent finance product that is becoming increasingly popular especially in poorer sectors of society. What are car title loans? Why can they be dangerous? And, what did the above mentioned report have to say about this new finance product? The answer to these questions will help you to make educated finance choices and decisions. Good information and up to date facts are paramount in today’s finance industry. For this reason we encourage all potential borrowers to carry out their own personal research before buying any finance product and to check local government consumer offices in their own country or state for legal requirements and consumer rights.

What are car title loans anyway?

Car title loans are loans that use the already paid for car of the borrower as collateral. These loans are often bough by people with bad credit and little collateral besides their vehicle. Car title loans have high interest rates which fall in what are generally called usury levels. It is not rare to find interest rates of 200 % to 300 %.

Why be careful of car title loan?

Car title loans are risky loans. The interest is very high. If the tenure or term of the loan is short this is not that much of a problem. Generally the term for these loans is 31 days and shorter. Unfortunately though, people that use these loans cannot make payments at the end of the tenure and have to “roll over” the loan to a new month. Rolling over the loan incurs in extra fees and a continuation of exorbitant interest rates. Lenders will justify the high interests with the fact that these borrowers would not be able to get loans elsewhere and the high interest rates are a response to the high risk of the borrowers.

All of us can fall in bad financial times and if one really needs the cash it would be pretentious to say it is wrong to use a car title loan. However there are generally different options from which to choose from. Try hard to get a conventional loan with lower interest rates. Even credit cards’ interest rates, often considered prohibitive, rarely climb higher than 22 %.

The Tennesse report we mentioned before highlighted the high interest rates and the high rate of repossessions. This causes great hardship to families that are already struggling to make ends meet. The report also found a large percentage of the loans were rolled over with a large percentage lasting well into the year. This means that for a 1000 dollar loan at an average rate of 200 % a year loan would cost the borrower 2000 dollars plus the 1000 dollar capital. 3000 dollars for a 1000 d0llar loan for one year is a dangerously expensive loan that can push borrowers down a spiral of debt that is hard to recover from.