Auto title loans are a form of predatory lending. Don’t let these lenders make you their prey.
If you’re strapped for cash and you own your car free and clear, an auto title loan might seem like a good way to get some fast cash when you need it. But auto title loans are among the most expensive kinds of credit you can get, along with payday loans and pawnshops. All of these loans fall into the category of predatory lending: They target consumers who are desperate for cash and therefore willing to pay ridiculously high prices to get it.
How title loans work
Auto title loans use your car as collateral. Collateral is property that’s used to secure a loan — in other words, it insures the lender against a loan default. If the borrower fails to repay the loan on time, the lender has the right to take whatever property is listed as collateral for the loan. That’s right: If you don’t repay your auto title loan, the lender can take your car. Some auto title lenders will even require you to install a GPS device in your car so that if they decide to repossess the vehicle, they can find you wherever you go.
Auto title loan lenders charge an average of 25% per month in interest on the loan.