(AOL.autos) — Cash advances are not a new concept in America’s brand of capitalism. Many people have seen the commercials with some guy barking out, „Bad credit, no credit, no problem!” Or, „Don’t worry about credit, I own the bank!”
Even though these lenders have been around for a while, signing your car over for a high-interest loan has become a serious financial issue.
For those of us who payday loans Washington are unfamiliar with the concept of car title loans, allow us to explain. At times, the best of us get strapped for cash; we may have no credit or bad credit (just like they say in the commercials), which keeps us from getting small loans from a bank or some other more traditional means. A title loan offers you cash from the lender, in return you sign over the title of your paid-for car to secure the loan.
Anytime some guy is telling you he owns the bank, run
Typically, these loans are due back in full 30 days later. There’s no credit check and only minimal income verification. It sounds pretty straightforward, but borrowing from these places can lead to a repossession of your car and a whole lot of financial trouble.
Car title loans have been lumped into the „predatory lending” category by many consumers. Non-profit organizations such as Consumer Federation of America (CFA) and the Center for Responsible Lending have issued detailed reports outlining some of the title loan issues that the public should be leery about.
One of the biggest issues with these loans is interest rates. Many people dislike credit card interest rates, which average between the mid to high teens for most Americans. Car title loan interest rates make complaining about credit rates seem ludicrous.
It’s not an exaggeration to see 250 percent APR and higher on these car tile loans and only a handful of states have passed strict laws that prohibit exorbitant percentage rates
Car title lenders are in a different category than credit card companies or banks and work around usury laws. Thus, title loan lenders are able to charge triple digit annual percentage rates (APRs). Yes, triple digits. Even if your credit card company is charging you a high interest of 25 percent APR, it’s nothing compared to car title loans.
By federal law, title loan lenders have to disclose the interest rates in terms of the annual percentage. If you have to get a title loan, make sure they don’t just give you a quote of the monthly percentage rate, they have to give it to you as an APR. If they are unclear about the rates, which many can be, just know that a monthly rate of 25 percent is equivalent to a 300 percent APR.
In addition to high interest, these car title loans usually include a number of fees that add up quickly. These include processing fees, document fees, late fees, origination fees and lien fees. Sometimes there is also a roadside assistance program that borrowers can purchase for another small fee. Some lenders have even gone so far as to make the roadside assistance mandatory
The cost of all these fees can be anywhere from $80 to $115, even for a $500 loan. Most of these fees are legal, except one that lenders sometimes charge, the repossession fee. Lenders are not allowed to charge you to repossess your vehicle, but some still do.
As if high interest rates and a mountain of fees weren’t enough, lenders also give borrowers the option of interest-only payments for a set period of time. In these cases, the loans are usually set up for a longer period of time (compared to the typical 30 days) and the borrower can pay the interest only on the loan.