You may have faced such a situation in life when you’ve fallen short of cash during the middle of the month. What step did you take during this moment? If you own a car and a title ownership of the car, you can get a loan, mostly in the form of quick cash in lieu of the vehicle’s title as collateral. Half of the states in America, including Texas, provide some form of car title loan but the only feature that keeps people from taking resort to such loans is its APRs of 260% or even more than that.
Although practices and law are different among different states, usually car title lenders don’t check the credit score of the borrowers, they don’t require any such serious income proof and they even require that the car is owned right there. The car title lenders offer loans which are worth 40% or less than the worth of the car. If you live in Texas, you may consult Chapter 306 of the Texas Finance Code.
How do title loans work?
A person who is going to borrow the loan will head towards the lender along with the title of the loan. Soon, the lender will assess the value of the car and provide you a loan which is based on a portion of the amount. As per Pre Charitable Trusts, the loan amount is on an average $1,000. Borrowers are allowed to drive away with their car soon after they receive the amount of money. The best part is that they’re permitted to use the car no matter how much loan amount they owe.
How can car title loans become harmful for your portfolio?
If you’re residing in cities such as San Antonio for example and you’ve taken out San Antonio car title loans, you can be sure that the lenders are going to bully you in case you miss on payments. 36% of APR is usually deemed as the upper range of the list of affordability. The fees associated with borrowing car title loan and the cyclical borrowing gets even more expensive. If you can’t repay the loan as per your agreement, you may even run the risk of losing the vehicle. In fact, as per the CFPB, 20% of those who take resort to short term loans usually end up getting their cars repossessed.
So, as a Texas resident, whenever you take out a car title loan, you not just pay back a hefty interest rate but you also run the risk of losing your car. Experts even say that the rates of repossession of these loans are pretty high and hence people should take a careful decision before taking out such loans.
How about consolidating or refinancing the loan?
One of the best ways in which you can eliminate the debt issues is by getting rid of the current loan and refinancing it with a new loan with better terms and interest rates. Though that won’t stop you from bleeding, but it can definitely get easier. You can watch out for a new unsecured loan with favorable interest rates and use the proceeds of the new loan to repay the past loan.
Are there any alternatives to car title loans?
In spite of several risks that the consumers are exposed to while taking out car title loans, these loan types are gaining popularity day by day. Texas saw a sharp rise in the total number of car title loans which were taken out and the number is seen to have increasing everyday, particularly in cities such as Dallas, Huston, Austin or San Antonio. In California and Illinois too, the CFPB reported that the number of people taking out car title loans are increasing.
If you don’t want to take out such loans, you can try borrowing money from friends and family members who trust you about repayment. If possible, you can even try to raise more money and if you don’t think that’s possible, you may even opt for personal loans. Even though your credit score may be tarnished, you can still get such loans which will probably cost you less in the long term.
Therefore, if you’ve been suffering from mid-month financial crisis, you can definitely try to make use of the value of your car by getting a title loan. But make sure you don’t fall into the vicious cycle of high interest debt.