What You Can Expect to Get (and Pay for) With Your Car Title Loan

Car title loans can be a great way to get out of some short-term financial trouble, but it can also lead to future financial trouble – and much more – if you fail to pay back your loan. That’s because, in order to be approved for any car title loan, you’re going to have to put up your car’s title as collateral. That means that if you fail to pay back your loan, you’re going to have to wave goodbye to your trusted automobile.

That’s quite the price to be willing to pay. Still though, if you’re considering taking out a car title loan, it’s important to know what you can expect to get, and what you can expect to pay in return.

How Does a Title Loan Work

The basics of a car title loan are really quite simple. Basically, in order to lake out a loan against your car, you need to have equity in your car. For many lenders, they’ll only consider lending to you if you have already paid off your entire car and own it outright. While some don’t require you to own it outright, it is the norm.

Once that has been established, the lending company will decide how much they are willing to lend you depending on the value of your car. Car title loans typically range between $100 and $5,500.

It is true that the amount you can borrow is based on the equity that you have in your car and the value of that car, but do not expect to get a loan that is equal to the actual worth of the car. Lenders want to make it as likely as possible that they’ll be getting their money back, so they will lend you only what they can get quickly and easily in exchange for your car in the event that you fail to pay back your loan. Most lenders will offer you a loan equal to between 25 percent and 50 percent of your car’s actual value.

Speaking of your lender wanting to ensure that they can easily get their money back in the event that you fail to repay the loan, it is important to know that some lenders will require you to install a GPS tracking device on your car so that they can easily locate it in the event of a repossession. If you didn’t think that they were serious about taking your car if you fail to pay, or pay on time, be forewarned that they are very serious.

How to Pay Off Car Title Loans

It is important to know that car title loans are almost always very short-term loans. You will be expected to pay back the loan in full, plus interest and any possible fees, typically within 15 to 30 days. While some car title loan repayments to include multiple different payments, others include what is called a balloon payment, which is a lump-sum payment at the end of your payment period that includes the loan payback and any interest and fees you incurred.

In some cases, you have the option to roll over the loan to the next month if you can’t pay it back. That will certainly come with added fees, however, and you have to know what kind of fees to expect before you decide to roll over your loan.

It is also important for you to know exactly what your interest fee is. The average interest rate on car title loans is approximately 25 percent. That might not sound too bad, but if you roll over your loan, and 25 percent interest is applied to each roll over, your small loan can turn into a huge financial burden. If you were to carry the loan for a full year, the APR or annual percentage rate, would be 300 percent of your original loan. That’s a serious hole to find yourself in, and it’s even harder to dig yourself out of that hole if you lose your car as a result of not being able to pay back your loan.

In the end, it is quite likely that you will be paying back a significantly larger amount than the original loan was. If you are prepared to take that risk, a car title loan could be right for you.

Losing Your Car/Repossession

Paying back your loan plus interest is one thing, losing your car is something else entirely. That’s what you have to be prepared to risk if you take out a car title loan. In the event that you are unable to pay back your loan, or keep up with your payments, your lender can repossess your car and sell it to make up for the money they have lost by lending you money you can’t repay.

If your car is repossessed, your financial situation could quickly go from bad to worse. Without a car, you might have a harder time getting to work or finding work. You could even have a harder time doing simple things like going grocery shopping, taking your kids to school, and more.

Before you take out a car title loan, it is imperative that you take a look at your daily life and decide whether or not you are willing to put your car on the line. You could get some initial financial relief with a car title loan, but it will by design be relatively short-lived. Don’t treat a car title loan like a way out of financial trouble. If anything, consider it as a possible step back if you are not able to pay it off as soon as possible.