Car title loans provide the way to many people to get the short-term loan quickly, but it comes with a problem that these loans are typically very costly. To get your hands on the car title loan, a borrower has to offer his car as the collateral by giving the title to the lender until the loan is ultimately repaid.
If a person has no other way and he/she needs the funds immediately meaning that he/she is suffering from a financial crisis at a particular moment, then the car title loans make sense. These loans come out to be more expensive than they are worth and a person has to put himself/herself at risk of losing his/her car as well.
How does it work?
To borrow a car, a person must have some share in the car. Most of the time the lenders ask the borrowers to clear any sort of loans which he/she may have taken from any bank or person to purchase that car. However, there are some of the lenders who allow you to take the car title loans even if you have some other debt regarding the car. Typically, these loans range from $100 to $5,500.
A question which is asked by many people is that how much amount can they borrow? Well, that depends on the value of your car or the equity that you might have in that car. So higher the value of the car greater amount can be borrowed but remember that it is recommended that you should not acquire the amount equal to your car’s value. The lenders are very clever. Therefore, they only lend the amount which they think can be recovered by selling the car if they ever have to repossess it. In the market, most of the lenders give the amount which is equal to the 25 or 50 percent of the car’s value. The lenders always keep sure that they are not scammed. Therefore, they place a GPS tracker in the borrower’s car so that the borrower can’t hide the car.
As I discussed earlier that these loans are short-term loans, therefore, they mostly have a due date within the fifteen to thirty days after borrow. It shows that to repay these loans you have to come up with the amount very quickly and this process of quick payment is known as “balloon payment”. Sometimes the repayment of the loan can be extended by the lender by rolling over the loan.
In the rolling over method, a person gets a brand new loan for thirty days. This technique is hazardous and expensive because your debt increases with time.
The main disadvantage of the car title loans is undoubtedly the placement of your car as the collateral. So there is a very high risk associated with it due to which you can lose your car. If you do not repay the loan in time then according to the agreement, the lender can take possession of your car and can sell it recover his money.