Some Things You May Want to Know if You Take out a Loan Against Your Vehicle
Car title loans have become very popular constructions since the financial crisis. We still associated them with a certain demographic of people, however, as we do with payday loans. People think it is only those on low incomes and those who have bad credit who are interested in them. In reality, however, the picture is not as clear as that.
A study was done in Cook County, IL in 2005 to see what really goes on with car title loans. Further studies were conducted since then in different parts of the country, and they all showed similar results. Let’s take a look, therefore, at the real truth behind title loans.
Title Loans Facts and Figures
- In Illinois, some 260 storefronts existed offering car title loans, offered by 63 different companies. Interestingly, public transportation across Illinois is very good and people don’t really need cars. Yet, car title lenders have consistently shown to thrive in metropolitan areas.
- On average, car title loans pay out $1,500, with an average APR of 256%, meaning people pay back a finance charge of $1,536. However, this is because many people roll the loan over. If paid on first payment, people would pay back just 25% interest, meaning they would pay $1,875 in total, rather than $3,036. Unfortunately, people don’t pay on first payment and this is a continuing trend.
- 21% of loans are currently being taken out in order to pay other loans off. This is what is known as the cycle of debt, and it continues to exist to this day. Unfortunately, many people take out short term loans in order to pay off other short term loans, instead of thinking about ways to budget to actually pay their debt off in full.
- 18% of car title loans do not get paid at all, meaning vehicles are repossessed. While this may not be a significant issue in metropolitan areas due to the aforementioned excellent public transportation network, people in more rural areas could lose their job or find themselves in financial difficulties because they have to pay for taxis all the time.
- The cost of damages for taking someone to court when they default on their car title loan is, on average, three times the amount of the loan principle. This means that short term loans can be incredibly damaging and incredibly expensive.
- Usually, when someone is taken to court for non-payment of title loans, they do not show up. As such, a default is immediately recorded as well. This is why it is so important to attend court, as you may have a chance to argue your corner.
Car title loans continue to be very popular. They are, in principle, a very good option to help people who find themselves in a financial emergency. However, you should only apply for one if you understand the commitment you have made, and if you know that you will be able to pay the loan back.
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