The beauty of car title loans is that you can still get to drive your vehicle even if the loan period is active. There’s no worry about your car being garaged (as if you transacted with a pawnshop), so for as long as you meet your payments you are still able to use it. Also, you can use the title of another vehicle if necessary. It does not always have to be a sedan – it can be a motorcycle, or even a pickup truck. For as long as it has a title, you can put it up for a car title loan.
While car title loans seem like an attractive, fail-safe option for when there is a financial emergency, there are still some risks associated with it, including predatory lending. It is important to be aware of these risks so that you go into the loan agreement knowing full well that you have to see your end of the agreement through to completion, lest these risks end up making themselves known. Here are some of the risks associated with getting car title loans, plus some tips on how you can lighten or avoid them altogether.
Risk 1: Having your vehicle repossessed
The greatest and most obvious risk associated with getting a car title loan is losing your vehicle. This risk is just like any type of risk in all sorts of loan: the item that you put up as collateral can no longer be collected due to your inability to pay off your loan.
This sounds scary but you do this all the time. If you rent an apartment and do not pay the rent you will be evicted. Same with a house. If you rent a car and you don’t return it, they will find it and take it back. Secured loans are risky but only to people who make them risky.
How to Lighten the Load: Obviously, the only way to avoid this is to pay off your loan. It may be a struggle for you to do so, but it is the only solution to getting your vehicle back. You may need a longer payment period to fulfill the total payment, so it is suggested that you talk with your loan officer about how it can be extended.
Risk 2: You won’t be able to get out of the loan
Another risk that can happen to you when you get a car title loan is having your interest rate balloon – sometimes, to the point where it actually ends up exceeding the principal amount of the loan. The monthly payments you make for your car title loan is composed of two things: a fraction of the principal amount divided across the number of months you intend to pay, and the corresponding interest rate of the total amount. When you fail to meet the payment deadline for one month, the interest rate will get piled on top of the next month, which results in a higher total for the succeeding month due to the penalties incurred. If you continue to fail meeting the monthly payments, you can expect that the total to become even bigger due to neglect.
How to Lighten the Load: Again, paying for the monthly due on time is crucial if you want to avoid interest charges or penalties applied to the following month. Because the monthly dues are fixed, it can be easy for you to anticipate when you need to pay and hopefully prepare for such payments beforehand. For some people, it helps to set alarms on their phones so that they don’t accidentally miss their deadlines. Other folks who come up short in meeting their monthly dues find ways to scrimp on their monthly budget (ex. put a pause on eating out for the whole month) so they have extra funds that will go towards their loan repayment.
Risk 3: A repossessed car gets sold for less than its value, and you end up assuming the balance
While having your car repossessed certainly is the biggest risk that can happen when you put up your car title for a loan, there is sometimes another thing that you will have to end up paying for: the balance of the vehicle once it’s sold after it has been repossessed. Before the loan takes effect, an assessor puts your car up for valuation. There are cases wherein the car gets sold for less than its value. Usually this is because somewhere along the line the overall market value of the car goes down, or the loan office can no longer find a buyer willing to take it at the original price, thus settling for the next highest amount. The difference between the original valuation and the price which the repossessed car was sold for will then have to be assumed by you.
How to Lighten the Load: Pay your loans on time, or if you can aim for a shorter payment period. It can be a race against time, but when your payment period is shorter the risk of your car being devalued is also much smaller.
Risk 4: Putting other possessions up for sale to repay the loan
When you find yourself unable to pay your car title loan or need extra funds to meet any additional charges from incurred penalties, you may end up letting go of your other possessions so you have extra money to pay for it. This may be in the form of valuable jewelry, gadgets, or even other automobiles in your possession. Being short on cash may force you to dispose of other possessions to avoid having your payments balloon up, and that can really contribute to your stress. However, the reality of your situation might require this kind of action – lest you allow your car to be repossessed at the end of the loan term.
How to Lighten the Load: Find other ways to make money so you avoid selling valuables in the meantime. You already know that your situation will require extra funds – that much is true. But first, see if you can come up with the money by yourself before selling your precious items. You might even consider selling off a few stock positions, which are intangible compared to the top of the line computer that you use for work. At the same time, evaluate if there are things in your home that you do not mind letting go of in order to come up with the necessary amount. You may decide that it is finally time to let go of your vast collection of designer sneakers – something that is not really essential to your personal or professional life. In fact, doing so now might be good while certain items still hold decent market value. If your rare collectibles are very trendy, you can be sure that they will fetch a good price. It is all up to you which items you might want to sell off should you be unable to meet the required amount.
It’s All a Matter of Priority
At the end of the day, a car title loan is worth it, offering many benefits, as long as you prepare yourself for possible risks that can happen. Just because there are risks attached to getting a car title loan does not mean you should spook yourself to the point where you decide you no longer want to take advantage of it. You need to remember that all types of loans will come with some risks, and some are bigger than others. Take for example putting up yet another mortgage for your home. If you fail to meet the payments, you run the big risk of losing the roof over your head. In contrast, car title loans seem very manageable.
However, its manageability is still up to you: you need to decide that you are in control of your dues and you do everything you can to meet them. Pay on time, find ways to make money, cut back on non-essential spending. These are the basic rules that one needs to follow when seeing a loan through to completion, and for many people it is not that difficult to stray away from those rules. Sure, it can be challenging to stick to the plan – but you should always remember that the sacrifices you make in order to pay off the loan is only temporary. Pretty soon you will be back to your regular routine and lifestyle. And by the end of the successfully met payment period, you will have gained a lot of points in the self-discipline department since you were able to do what was necessary to make the payments!