On the surface, you may think that by offering security, you will automatically get a better rate of interest on a loan than otherwise. That is often the case but there is more to it than that when it comes to Car Title Loans. They may be one of the few products available to you if you have a bad credit score but you should be aware of the risks involved. Companies offering Car Title Loans are in a strong position and you must realize that.
The recession has faded but make no mistake; there are people still suffering the consequences of a period of unemployment. At its height, unemployment reached double figures and though the latest figures are an impressive 4.7%, that does not mean there is no a significant section of society carrying debts that began back then. It can take some time to recover from the financial setback that the recession created for so many families. Many lost their homes and have a poor credit score that still affects their ability to borrow money at a manageable rate of interest.
The level of credit card debt in the USA suggests that the lessons of the recession have not been learnt because the average debt that people carrying a balance forward each month is over $15,000. That represents a lot of unnecessary interest that people are paying.
The Vulnerable are a Target
The vulnerable section of society is precisely the one that companies offering loans at a high rate of interest are targeting. They almost want vulnerable people to fail because of the consequences of default, more fees and penalties. In the case of car title loans, the maximum that a company will lend is 50% of the market value. If someone defaults and the company repossesses the vehicle, there is every likelihood that they can obtain more for it than they originally lent. While repossession does involve some further administration, lenders cannot lose.
A Profitable Business
Car Title Loans are short term but figures from the center of Irresponsible Lending suggest that people who first take out such a loan do so again on average eight times. Lending companies can develop a valuable database it seems.
The annual figures on Car Title Loans make very interesting reading. It appears that a figure of $1.9 billion is loaned out each year. The companies doing that make a total of $4.3 billion. Good business bearing in mind these very short term loans come with security that is not offered for such as payday loans.
Vulnerable people defaulting on a Car Title Loan can lose perhaps the only asset they own at half it market value. Sometimes desperation leads to actions that involve risk. Ideally, if you are facing a serious financial crisis, there are other options you can explore. Family may want to help, friends too, but in many cases they are no better off than you.
The Loan Is only Part of the Answer
If you decide you have no other course of action, you must read all the terms and conditions that apply to the loan you are signing up for. Assuming you have regular employment you must look at your income and expenditure to see the whole picture. That employment may require you to have a car so the consequences of losing it can cause even more misery. You may have some very unpleasant reading if you look at your finances; what you earn every month and what you are spending. You can seek a short term answer to a crisis by signing up for a Car Title Loan but at the same time you must try to devise a strategy for the future to try to get yourself out of trouble. That may involve seeking further sources of income as well as reducing your expenditure. The two working together may provide an answer.