Car title loans, fast track to an emergency loan with bad credit?

Car title loans, fast track to an emergency loan with bad credit? Yes, would be the quick answer to that question which would make for a very short article indeed. Of course that answer must be qualified with many factors that control the availability, desirability and risk of taking on a loan. This article will aim to cover three main points. 1) What are car title  loans? 2) Are they a solution for bad credit borrowers? 3) What dangers are inherent in these loans?

1) What are car title  loans?

Car title loans are loans that use your car as security. When you sign for the loan you will need to give the lender the title for your car loan. If you don’t pay your loan they will sell your car to pay your debt. Car title loans have three main characteristics, 1) They are for small amounts, 2) They are short term loans designed to be paid quickly, 3) The interest rates are very high. Let’s elaborate on these factors.

Car title loans are generally for small amounts from 500 to 5,000 dollars. They are always for amounts well below the price of the car that is used as security. They are designed and sold as a one month loan. However if the borrower cannot pay the loan it can be rolled on to the next month although with high interest rates. The interest rates are so high they are worth mentioning in more detail. Interest rates for car title loans regularly are three figure rates. Seeing 200%, 250% and even 300% is not unusual. These levels are so high to put them on a level of their own. Credit card interest rates, considered by some to be prohibitive are extremely cheap in comparison. For instance credit card rates will be typically 15 -20 % APR which sounds cheap compared to 300% APR. These interest rates are at usury levels which has made some countries and states to try to control them or ban them.

Are they a solution for bad credit borrowers?

It is true that borrowers with bad credit that might not be able to find a loan through traditional methods, (at least not easily) might feel these loans, expensive as they might be, are the only way out. If it is an emergency and you have no other way to find the money, it might be your only option. However there are other options that you can pursue, which makes it very unlikely this is the only way out. Other options include government sponsored loans for low income families, payday loans that are paid the next month straight from you paycheck. You can always try borrowing from your employer, family or friends.

What dangers are they?

Many. Loans like these can throw borrowers into a cycle of debt they might not be able to get out of. Most Car Title loan borrowers do not pay their loan within the initial term, rolling on the loan to a further term, increasing the interest and fees. This often causes them to lose their most valuable asset which enables them to get to work, shop, pick up the kids, their car.