5 reasons to avoid a title loan

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If you need a loan as soon as possible, you are more likely to come across lenders offering title loans. At first glance, it looks convenient. Fill out a loan application, pledge your car title, and get cash in less than an hour.even if you’re short credit scorewill probably still be approved.

Unfortunately, title lenders are predatory and most borrowers will regret a title loan. This is why title loans should be avoided at all costs.

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1. Very high interest rates

It’s no exaggeration to say how expensive a title loan can be. The average APR is 300%, which is not a typo. Currently, these are intended for short-term loans, but still have a monthly interest rate of 25%. For comparison, best personal loan Offers well below 10% APR.

At an APR of 300%, a $1,000 title loan accrues $250 in interest in just one month. You can get cash quickly, but it comes at a cost. Because of these high interest rates, title loans are prohibited in 29 states.

2. Short repayment period

Typical repayment terms for title loans range from two weeks to one month. On the one hand, this is not the type of loan you want to take out for too long given how expensive it is.

Less than a month is not enough time to improve your financial situation and calculate all the money you borrowed plus interest. If you can’t do that, you’ll have to refinance. This means that you will pay the interest you owe and start working on another month with more interest.

3. You’re putting your car in danger

Your car is collateral for the title loan. That’s a big risk. A car tends to be his one of the most valuable assets that most people have, the thing they rely on to get to work, the supermarket, or whatever else they need.

4. They lead you to failure

Scenarios in which title lenders succeed include: You borrow money from them when you are in need. Due to the short repayment period and high interest rates, it is not possible to pay the full amount. Instead, you have to refinance your loan each month and pay more interest each time. If you’re lucky, you’ll end up paying the full amount. Otherwise, the lender will just take your car away.

this happens all the timeThe Consumer Financial Protection Bureau (CFPB) investigated title loans in 2016.

  • Only about one-eighth of loans are repaid without refinancing.
  • Over half of all title loans are for three or more loan sequences.
  • About 1 in 5 title loans result in the borrower’s vehicle being remanded.

5. There are better options available

A title loan is often a last resort, but even if most loans aren’t available to you because of your credit, you may have more options than you think.some are good Alternatives to short term loans What many consumers don’t know. Here are some methods to consider:

You can also research loan options at your bank or local credit union, and see if friends and family can help.

The cost of a title loan and how it is set up can put you in a considerable financial hit. If you take the time to explore the alternatives, you may find far better and cheaper options.

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