Car Title Loans – How Do They Work

Car title loans are short-term loans that are secured using your auto title, that is, by using your car or any other vehicle you own as collateral. Getting an auto title loan does not require a credit check. The lender will give you the money and at the end of the auto title loan period, you pay it back with interest. During the loan period, you can continue to use your vehicle; however, the lender will keep a spare set of the keys as well. If you default on your loan payment, the lender repossesses your vehicle.

• Since your vehicle has a clear title, a loan can be got without the processing delays that plague other types of loans.

• Car title loans are short-term loans with the repayment period varying from 14 days to a month of the loan being issued.

• Rollover plans are available in case one is not able to pay off the car title loans when due. Rollovers are, however, accompanied by large interest payments. You could end up paying an amount many more times the auto title loan amount secured under such schemes. It so happens sometimes that the annual percentage rates (APRs) on many auto title loans are in triple digits because of repeated rollovers.

Is an auto title loan right for you?

Car title loans can be a very high financial risk for auto owners, especially those who borrow an extravagant amount as loan. A single miss in the repayment of an auto title loan could result in your auto being reclaimed immediately. To add to your woes, you cannot prevent the lender from generating additional funds by selling your auto above retail value.

For this very reason, auto title loans are a very low financial risk for lenders. Borrowers often secure loans for far less than the value of their autos but get embroiled in a vicious cycle of rollovers and repayments, which costs more than they can imagine.

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