Car title loans can be a fantastic way for you to get yourself out of some short-term financial trouble.

But it can also lead to future trouble if you fail to pay back your loan in time.

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 will likely have to say goodbye to your beloved automobile. That’s because your lender will have the option to repossess your vehicle to recoup their losses.

It’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 car title loans work

The basics of a car title loan are really quite simple. 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.

Once ownership has been established, the lending company that you are interested in working with 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. In some states there are required minimums for title loans to be worth. In all states there are required maximums which typically land somewhere between $15,000 and $50,000.

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 total market value of the car.

Lenders want to make absolutely sure that they’ll be getting their money back one way or another, 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 70 percent of your car’s actual value.

As long as we’re on the topic 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. This should be a sign of just how serious car title lenders are when it comes to making sure they are either to recoup the money they loan out.

What you need to pay off your loan

Before you take out your car title loan, it is very important that you know how long the payment terms of title loans are. Typically, they’re quite short. After you take out your loan, 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 can include multiple payments in one term that spans over a number of months, most title loans include what is called a balloon payment. A balloon payment is a lump-sum payment at the end of your payment period that includes the loan payback and any interest and fees you incurred. Basically it’s an all-in-one repayment to close out your loan.

In some cases, you will 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. Not only will you have to accrue added interest fees, but you could also face late fees and other hidden fess as well.

It is 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.

What if you default

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. Don’t treat a car title loan like a way out of financial trouble for good, that’s not what there here for. What you should instead consider it as is a necessary stopgap. When you’re really in need of fast cash, a car title loan can be a great help, but make sure that you have consistent money coming in aside from that so that you can pay it off in time.

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