Understanding
high risk car loans no down payment
How Auto Title Loans Work
If you own your own automobile, auto title loans can be a source of funds during a cash crunch.
As long as you own the title to your auto free and clear, without any liens against the vehicle, you can qualify for a title loan within minutes. No credit checks are necessary as your auto is used as collateral for the loan. Some lenders also require you to give up a spare set of keys to the auto, in case you default on your loan and they repossess your vehicle.
Title loans are intended for short-term use, with repayment due within anywhere from 14 days to a month of the loan being issued. If you don't have the funds to pay off the loan you'll have to rollover the loan for another payment period. Rollovers are often large interest payments paid to keep a loan from defaulting, with little or none of the principal paid off. If you rollover your loan just a few times you could end up paying many times the amount of the loan in interest and fees alone. Annual percentage rates (APRs) on many title loans are in the triple digits.
For lenders, title loans are a very low financial risk as borrowers often take out loans for far less than the value of their autos. Borrowers can get up to the fair market retail value of their autos with a title loan, however.
Title loans can be a very high financial risk for consumers, especially those who borrow more money than they actually need. One missed payment on a title loan could result in your car being repossessed immediately. If your car is seized in some states, the lender can keep any additional funds generated by selling your car above retail value and you may still be liable for paying back the loan.
Depending on your circumstances, title loans may be a breeze to get ahold of and a nightmare to get rid of.
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John Campbell is the writer and editor of CashBuzz, A financial portal for the rest of us. Check out cashbuzz.com for the latest articles on money management and tips and tricks that can help improve your finances. This article may be reprinted on your Web site if the copyright, author information and active link are included.
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