Car Title Loans
Sometimes you find yourself in the position of being short on cash and unable to get a loan without a cosigner or collateral to guarantee the loan. Title loan companies are often eager to lend you cash if you turn over the title to your car as collateral.
There are many traps to title loans, so you really need to understand what is going on here. First of all, if you go to a title loan company, you will get ripped off.
Title loan companies are in the same business classification as payday loan outfits and pawn shops. They are known as fringe banking companies and they operate outside of the traditional lending structure.
A title loan company might offer you a $5,000 title loan on a car worth $11,000. Of course you must own the car outright with no liens. The interest rate is usually greater than 20%. If something happens and you are unable to honor the terms of your loan agreement, they can take your car.
Title loan companies serve debtors who generally have very bad credit. They are covered whether you are able to repay the loan or not. They can simply repossess your car if you cannot repay the loan balance as agreed. Title loan companies might be the worst option that you could consider.
When you own your car and are making no car payments, you might find that you can reduce the interest rate of a loan by pledging the car as collateral. At North Carolina's State Employees' Credit Union, the interest rate on their unsecured personal loan product was 10.75% as of July 16, 2010. Compare that to their used car loan rate of 4.75%. You might be able to use your car as collateral on a used car loan and cut your interest rate by over half! Simply contact the lender directly to determine the eligibility requirements for loan approval.
Finance companies may have lower credit requirements than banks or credit unions but their interest rates are routinely much higher. Still, they might be a better option than a title loan company.
When making your decision, consider whether you need the loan in the first place. Second, decide if you can afford to take out the loan. By using your car as collateral, you might be risking your most valuable asset that you need to travel to and from your job!