We all know what happens when we fail on a loan payment. What we get on our head are fees and extra interest and if you fail to repay this money then might be reported to an agency which is responsible for the collection of loans. After that, you will surely be harassed by phone calls and probably might end up with a lawsuit. Your credit score will surely take a hit once you get into this mess.
One more situation which will just bring you down the dump is if the lender takes away your beloved possession-your car. Imagine the pain of not seeing your car there. That’s what happens when you take out a fast title loan.
What is a title loan?
A title loan as the name suggests is a title loan that you secure against your car. The basic procedure is that you secure the loan and get a few hundred dollars and then you have to pay it back within a month with the interest fees.
Title loans are also notoriously called pink slip loans and are risky for several reasons. One of the most common reasons is that interest rate is very high- 200% percent being the common percentage. In addition to that, you are only given a few weeks to repay it back. High-interest rates and very short repayment period often leads the borrowers to be trapped into a cycle of debt. Once they can’t repay the loan, they take a loan again which racks up extra fees and interest.
The statistic is that a loan is usually rolled up over by 80% borrowers. Title loans including payday loans are usually termed as Predatory lending which literally puts the borrowers in a debt cycle. In these cases, the lender can take your car and sell it without your consent.
How do title loans work?
Title loans are usually offered online. Once you apply online for a loan, the lender party will come and check your car’s worth and then asses the loan amount and interest fees. A typical loan will have to be repaid in two weeks to a month’s time. You will have to pay back the loan by this time with the addition of the interest.
What happens if I miss a payment on a Title Loan?
If you miss a payment on the title loan, then you are given option by the lender that you need to pay the interest there itself and you can give back the total amount you borrowed the next month. And because you are extending it for another month, you have to pay the interest and fees all over again. You once fall into this trap and hence you get stuck in this cycle. Here, you are not paying any amount of loan; you are just paying the interest back and back again. Once the lender calls your default, he can repossess your car.
How does Title Loan repo work?
In any condition, a lender can repossess your car as soon as you default. They can tow away your car and can take it away without your consent. Some lenders even install GPS in the vehicle to always have a location of the vehicle so then they can confiscate it any time. When the lender repossesses your car, he will put it up for sale to recoup the money you borrowed. In some cases, lenders can keep the entire amount including the profit while in some states they have to give the difference back.
Are Title Loans legal?
Title loans are legal in states like Alabama, Arizona, California, Delaware, Florida, Georgia, Idaho, Illinois, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Nevada, New Hampshire, New Mexico, Ohio, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wisconsin. Many states have banned them because they are very risky and often lead the borrower into a debt cycle.
If you have a bad credit history, the chances are that you will be denied a loan. It all depends on your credit score. If your credit score is bad, then you won’t get a loan even from the banks and credit unions.
Before you consider title loans which are a form of predatory lending, you should ask your family for a loan because it would prevent you from falling into a debt cycle.