Car title loans are quite well known for being expensive. The interest on the loan is generally quite high, especially when compared with other personal loans for the same amount of money. So, why are people still taking out car title loans?
If you have a poor credit rating, the impacts are wide ranging. You may find that:
- You are unable to get a mortgage on a new property.
- You are unable to remortgage the property you are already living in.
- You can’t access some services — for example, mobile phone contracts.
- In some cases, it may even impact your employability.
People with poor credit can end up stuck. They need money in order to pay off their debts and improve their credit rating; however, they are unable to borrow any money or improve their chances of earning more money through education due to the student loans that are needed to fund an education.
People with poor credit often utilize secured loans such as car title loans to consolidate their debts and help them to get back on their feet. Car title loan providers will still lend money to people with bad credit because the loan is secured against the value of their car so the risk to the lender is very low. Interest rates on car title loans are high, but if they are lower than the combined interest rates of the debts the borrower already has, then it can be a reasonable option.
They Need to Borrow a Large Amount of Money
The amount of money that banks and other financial institutions will lend you depends on what they think you can pay back and what the risk to them is. The more money you want to borrow, the higher the risk is to the lender if you default on your payments.
In order to mitigate this, lenders often offer ‘secured’ loans, which is what a car title loan is. This means that when deciding how much to lend you they also take into account the value of the assets you are putting up as collateral. And generally, this means they will lend you more than they would otherwise. To find out more, take a look at this Car Title Loan Guide – Fast Money Car Title Loans.
The Loan is Only Over a Short Period
Car title loans generally need to be paid back within a year. If the borrower knows that they can pay the money back within this time, and they aren’t going to worsen their financial situation by taking out the loan, then sometimes they will do this in spite of the high interest rates.
They Have a Second Car
Your car is at risk when you take out a car title loan. In fact, in some cases, the lender will hang on to your vehicle until you have paid back the money. Obviously, for someone who needs their car to get to work, this is not a great idea! However, if you secured the loan against your second car then it would make it a more feasible option.