Car title loans have gotten a bad rap in recent years, and for good reason. They're expensive, the deals are usually not all that good, and most buyers walk away deeply in debt. However, in some cases, they're the only way to get your hands on some money. And, it may be your only opportunity to learn responsible borrowing behavior.
What Are They And How Do They Work?
Title loans are simply loans against your vehicle. Some car loans, like Car Title Loans Los Angeles, service a particular area.
Others, you can obtain over the Internet, like a payday loan or some other short-term, high-interest, loan. In some respects, a title loan is a lot like pawning your vehicle. You take the vehicle in to a loan broker, he assesses it, gives you a loan, and then you hand over the title.
You make regular payments. If you miss a payment, the lender gets to keep your vehicle – you've essentially sold it to him.
Who Qualifies For A Loan?
For this type of loan to work, you need to own the vehicle free-and-clear. That's because you must have the authority to hand over the title to the lender. With most car loans, the bank has an equitable, and legal, interest in your vehicle. You can't get rid of it without the bank's say-so. And, a bank won't let you hand over the title to some other lender.
The "Catch 22"s
The "catch-22" of title loans is that they're really expensive. Plan on paying 3 percent per month, or even more. That's an effective rate of 36 percent a year. Also, watch out for provisions that allow the lender or car dealer to take your vehicle away from you if you miss one payment. Find out what the grace period is for payments, and also make sure you understand the mitigation rules if there is a dispute over a payment or return of the vehicle.
Other Funding Sources You Might Try
If you have any credit cards, these are usually a better option than a title loan, even though the credit cards will probably have a higher interest rate. Sure, you don't want to get in over your head, so this is the time to get responsible with your cards.
How do you do that? By defining and setting firm goals for your borrowing and spending. Write them down – what you will spend the money on, why, and why you can't do without these things or services. Justify the credit card expenditures to yourself, and then take them to a skeptical friend and see if it passes his or her judgment.
What you want to do is train yourself to be more objective, and a little more frugal, with the way you handle money. Credit cards aren't evil – it's the behavior that often underlies spending and saving that needs to be changed.
Anyway, other sources of funds include cash values from life insurance, a secured personal loan from your own local bank or credit union, a loan from a pawn shop, or an emergency loan from your employer (or even your 401(k)).
At the end of the day, if you do have to use a title loan, that's fine. What's important is that you repay it on time to move yourself up the a few rungs on the credit ladder so that, next time, you qualify for a better option.
By Cathrine Howe
Cathrine has had a number of car loans over the years. A retired school teacher, she likes to write about topics that concern the average person daily. You can read her helpful posts on a variety of blog sites and websites online.