Car title loans can be bad news
If your heating bill is outrageous this month and you can’t afford to pay it...and the rent, and the groceries...you definitely need to re-examine your budget and track your spending. Unfortunately, even adjusting your budget doesn’t solve the immediate problem – you need money now. In this situation, it might be time to get a car title loan. Here’s a rundown on whether or not that’s a good idea.
The Good
First, a definition: car title loans are loans in exchange for putting a lien on your vehicle. While you get the money from the loan, you also get to keep driving your car. Because of this, car title loans are very popular with people who need money now, but aren’t able to give up any of their possessions.
Multiple car title loan companies can be found in every Canadian city. The loans are quick and easy to get – the companies don’t often run credit checks and they accept pay stubs as proof of income.
Car title loans are usually valued at between 25 and 50 percent of a car’s value. So, for example, if you have a car worth $10,000, you will be able to borrow between $2,500 and $5,000, without having to sell your car.
The Bad
A big drawback of car title loans is their short repayment terms. These loans are usually due within 30 days. Because of the short term nature of the loans, car title companies charge higher rates of interest than a bank would. Would-be borrowers can shop around for first-time customer discounts, but these discounts are only available for the first 30 day loan.
Customers who are unable to repay their car title loan within 30 days might be able to “roll over” their loan. While “rolling over” the loan extends it for a further 30 days, companies will charge fees to do so, and any interest rate discounts will disappear.
The Ugly
The ugliest part of car title loans are their extremely high interest rates. Although rates vary by province, they all tend to be higher than the interest rates charged by credit card companies. However, this interest rate is displayed as a low monthly rate (the larger, annual rate can be found in the fine print).
On top of high annual interest costs, car title loan companies almost always charge fees – loan initiation fee, borrowing fee, etc. These fees are a fixed cost and are a huge penalty if the loan is for a relatively small amount.
In fact, car title loans are so expensive that some people call them predatory loans. This in part comes from the belief that these companies prey on people who won’t understand the terms and conditions of the loan.
Finally, the kicker – borrowers who are unable to repay their car title loan risk having their vehicle repossessed. Once repossessed, borrowers face even more fees to get their car back, on top of what they owe for the original car title loan.
When determining whether a car title loan is the right choice for you, weigh all of your available options. Look into credit card cash advances, payday loans or pawn shops, if you need quick cash. If you have a little time to make an adjustment, look for ways to keep more money in your bank account.
If you find that car title loans are your only option, be sure to read the fine print and make sure you understand the terms of the loan. That way, you can avoid any surprises down the road.