2018-01-11 / Editorial Page

This weeks tips from the BBB

Many consumers are looking for ways to pay off some of the debt incurred over the holidays and some may consider a car title pawn. A car title pawn is a short-term, high-rate loan that uses the clear title on your vehicle as collateral. It is a very ex­pensive form of credit. These loans typically are for 15 or 30 days and have a triple-digit annual percent­age rate (APR) - a much higher interest rate than most forms of credit. Car title loans often are for an amount that is 25 percent to 50 percent of the value of the car

Lenders often charge an average of 25 percent per month to finance the loan. That translates to an APR of at least 300 percent. It could be higher, depending on additional fees that the lenders may require. For example, if you borrow $500 for 30 days, you could have to pay, on av­erage, $125 plus the original $500 loan amount - $625 plus additional fees - within 30 days of taking out the loan.

If you can’t pay off the loan in the typical 30-day period, the lender may offer to ‘roll over’ the loan into a new loan. But the roll over process always adds fees and interest to the amount you originally borrowed. Say you take a loan of $500 for a 30-day period. But you can’t pay back the full $625 plus other fees at the end of 30 days. You can pay only $125. If the remaining amount is rolled over into a new loan, it would add more fees and interest to the amount you already owe. This may result in a dangerous cycle of borrowing and rolling over the loan amount. You may end up paying more in fees than the amount you originally bor­rowed, and you may actually find it impossible to pay off the full debt. If you don’t pay what you owe, the lender may decide to repossess your vehicle.

If your car is repossessed, you lose not only your transportation to work, school and other places you need to go, but also the money your car was worth. Some lenders require installation of Global Po­sitioning System (GPS) or starter interrupt devices on the vehicles for repossession, among other purposes. GPS devices track the location of your vehicle, giving the lender quick access to it.

Some states have laws that force lenders who have repossessed and sold your car to pay you the differ­ence between the sale price and the loan amount. Other states allow lenders to keep the full amount from the sale.

Before you decide to take out a car title loan, think about some other choices: l Consider a small loan from your bank, credit union or a small loan company. Some banks may offer short-term loans for small amounts of money at competitive rates. Some community-based organizations may make small loans to people, too. A cash advance on a credit card also may be possible, but it may have a higher interest rate than other sources of funds. Find out the terms before you decide. In fact, always shop first and compare all available offers before signing any papers. l Shop for credit. Whether you’re looking for a car title loan or another form of credit, always shop for the best offer. When you’re looking at lending products, compare the APR and the finance charge, which includes the loan fees, interest and other credit costs. You are look­ing for the lowest APR. Military personnel have special protections against super-high fees or rates, so do your research. l Contact your creditor if you fall behind on payments. If you’re considering a car title loan because you’re having trouble paying your bills, contact your creditors or loan servicer as quickly as possible and ask for more time. Many may be willing to work with you if they believe you’re acting in good faith. They may offer an extension on your bills, in which case you should make sure to find out the charges for that service, such as a late charge, an additional finance charge, or a higher interest rate. l Find a credit counseling ser­vice. Contact your local non-profit consumer credit counseling service if you need help working out a debt repayment plan with creditors or developing a budget. These groups offer credit guidance in every state for no or low cost.

Make a budget. Make a realistic budget, including your monthly and daily expenditures, and plan, plan, plan. Try to avoid unnecessary pur­chases: the costs of small, everyday items like a cup of coffee add up. At the same time, try to build some savings: small deposits do help. A savings plan - even a modest one - can help you avoid borrowing for emergencies. Saving the fee on a $500 car title loan for three months, for example, can help you create a buffer against some financial emer­gencies.

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