Title loans are the riskiest kind of small loan

January 7, 2013 at 9:43 pm

Payday loans have been around for decades. Useful for people with bad credit, they offers fast access to cash with few requirements. Lenders have expanded their offerings in recent years, and people can now borrow money against their car title. While these secured loans are attractive because they offer higher dollar amounts, they also carry a greater risk.

Strict Terms

Car title loans feature strict terms. Instead of a traditional loan through the bank where you will have a few months or years to pay off the loan, loans usually have to be repaid within a month. While there may be a few small payments in the first few weeks of the loan, the primary balance is paid at the end in a balloon style payment. If you are struggling for cash today, ask yourself how you will have the funds on hand when the loan comes due.

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Fast Repossession

Title lenders aren’t going to play games with repossessing the car if you don’t pay off the loan. They will probably fit the vehicle with a GPS to make it easier to find. They may also retain a copy of the car key to make it easier to take possession of the car later.

The Snowball Effect

Given how likely it is that you may lose the car at the end of your loan term, you have to ask yourself what happens next. How will you get to work with no car? They only loan you 50 percent of the car’s value or less, so how will you have funds to find a comparable replacement car? Without the car and transportation to work, how long will it be before you lose your job? The simple fact is that taking out a title loan can quickly leave you in a position where things have gone from bad to terrifying.

If you are pressed for cash and need a loan in record time, then a traditional payday loan is a better option. While the terms are still expensive and lenders are strict about repayments, you won’t have to worry about losing your car if the loan is not repaid. Don’t take chances with your car and don’t set yourself up for a precarious situation financially. Try to find another way to get the funds by selling items you don’t use or borrowing from friends. If you still need to borrow the money, then a regular payday loan is a much safer option.