Between the house payment and the car payments and the insurance payments, not to mention taxes, debt can add up very quickly. When this happens, people might become suddenly short of cash. When this happens, they look to the financial options available. One of the more valuable assets that many people have is their car.
How Does a Car Title Loan Work?
A car title loan is a loan where the borrower receives cash based on the value of their vehicle from a lender. The vehicle must have equity in order for the lender to make the loan, and in fact a lot of lenders prefer cars that are fully paid off.
The lender then holds the note of the car title loan, until the full repayment is made and the individual receives their car back. If they do not repay the loan within the terms of the contract the lender may then sell the borrower’s car.
Term of a Car Title Loan for Bad Credit Customers
Most car title loans are short in the length. They usually range from a period of two weeks to a month. At that time there is usually a clause in the contract that allows the borrower to renew the term of their loan. After several renewals however, the lender will eventually want their money or take possession of the car from the borrower.
Interest Rates Associated with a Car Title Loan for Bad Credit Customers
The interest may seem reasonable or similar to a credit card loan, however it is usually much greater. The 20 to 30% that is quoted by the lender is for the term of the loan, which is two weeks to a month. If that loan is extended that interest rate renews. This means that most car title loans are actually in the hundreds of percents if their true APR was worked out over a yearly basis. It behooves the borrower to pay back the loan as quickly as possible so that their interest expense is kept low.
Other Fees Associated with Auto Title Loans
Many lenders also charge application fees, processing fees and rollover fees if the term of the car title loan is extended. Be sure to have a full understanding of all associated fees before signing a contract.