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Just because you take out a title loan doesn’t mean your car will be repossessed, but the odds are stacked against you. Title loans are extremely expensive; lenders could charge as much as 25 percent, and that is only the per-month charge. Twenty-five percent per month translates to a 300 percent annual interest rate. And because lenders typically hold an extra set of car keys in addition to your car title when they issue a title loan, repossessing the vehicle is easy.
Definition of Title Loan
Title loans are popular with people who have poor credit because the lender does no background checks or run any credit reports. As long as you own the car and possess the pink slip, you can get a title loan, which is typically a percentage of the car’s wholesale value — 50 percent or 60 percent is common, but some lenders might lend only 30 percent. People in the market for title loans typically are strapped for cash and might not be able to pay back the loan when it’s due. For this reason, title loans are predatory loans — they target people who have little ability to pay. Only some states allow title loans. Of the ones that do, some have restrictions, and some don’t.
Risk of Repossession is High
Typical title loans must be either paid back in full in one month or be renewed to prevent repossession. If they are renewed, the borrower pays back only interest for the normal payment and is expected to make a balloon payment at the end of the loan. The balloon payment is normally unaffordable to the typical customer who takes out a title loan. This results in repossession.
The average a title loan lender lets someone renew the loan is eight times. After that, the lender requires full payment. The lender usually doesn’t expect the borrower to come up with the amount owed. If the borrower doesn’t pay in the allotted time, the lender repossesses the car. Car title loans are generally marketed as 30-day loans for people who need cash quickly, but the loan rarely turns out that way. Many title lenders would rather repossess the car than have the borrower pay back the loan. Title lenders make more money that way.
Might Not End With Repossession
If a title lender repossesses your car, and the car doesn’t sell for what you owe the lender, the lender can probably pursue you for the balance. This could entail the lender seeking a judgment against you. If that happens, your wages or bank account could be garnished, or the lender could put a lien against your property.
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