If you have ever been desperate for cash and have nowhere else to turn to, you know how easy it can be to fall victim to loan swindlers. Because car title loans are given to people with bad credit or no credit who need cash for an emergency, this market is susceptible to tricky lending practices. Many lenders who operate in the subprime market practice what is known as predatory lending. Predatory lending practices by title loan firms can trap borrowers in long-term debt, and put them at the risk of losing their vehicle, which is one of their most important properties.
When people are desperate for cash, they are more susceptible, are less likely to read the fine print, and can easily fall prey to predatory lending. With no laws to govern them, most car title lenders, operate under the same regulations that govern pawn shop brokers. Companies that provide car title loans cater to borrowers with bad credit and they charge higher interest rates than traditional lenders. Since their loans are open-end credit, borrowers are sometimes forced to pay triple-digit interest rates and end up agreeing to unreasonable loan terms that lead to unfair treatment.
Apart from rigid terms and hidden fees, borrowers could end up paying a balloon payment at the end of a term. If the loan is not repaid within 30 days, lenders could roll it over into a new agreement and charge extra fees and even higher interest rates. Some companies charge pre-payment penalties that prevent borrowers from repaying the debt before time to save on interest payments. To ensure that you do not fall prey to such deceitful lenders, it is ideal to know your rights, and to understand the applicable laws and industry standards. To protect yourself and your vehicle from predatory lenders, the initial thing to do is to be better informed about the car title loan industry and compare different lending firms.
Interest rates on car title loans can vary between lenders within the industry. Therefore, you need to compare the interest rates provided and understand the annual rate of interest you’ll be paying. You can do this by reading the legal disclosure section of the loan agreement. Avoid predatory lenders who use destructive tactics to pressure you into signing agreements that impose inflexible terms that are difficult to live up to. Look for a lender that provides flexible term options. This will give you more freedom for repayment, and makes it less likely that you will get into a situation where you could lose your car title and have it repossessed.
Most auto title lenders want to be paid back within a month. Nevertheless, if you’ve not paid within the stated period, your loan will roll over and you’ll be charged high-interest rates and additional fees. This can result in a vicious payment cycle of debt where you find yourself only able to pay the minimum payment. This will cause your loan balance to increase quickly.
Some lenders will tempt you with low-interest rates only to find out that the real monthly interest rate is in hundreds. Borrowers who are desperate and want to obtain quick cash may not take the time to ask what rate they will be getting. This is where reading the fine print on your loan documents comes in handy. Trustworthy car title loan lenders will have sample payment plans and calculators on their website so you can get an idea of how much you’ll pay for the fund you want to borrow.