Car title loans or vehicle title loans as they have been called have generated considerable heat and stoked much debate revolving around the ethics and practices connected with this industry, and the experiences of both the lender and the borrower have occasioned close scrutiny, much of which unfortunately remains negative. Lenders of car title loans are seen as aggressive victimizers out to snatch away the client’s vehicles on the slightest default in order to make killing profits from their forced auctions, and borrowers are usually portrayed as suffering mute victims, a patently false scenario that is far removed from the truth.
At first glance what critics find most objectionable about the title loans industry is the all-pervasive feeling that the interest rates charged by financiers of pink slip loans are far in excess of the lower rates levied by the regulated commercial banking industry, which is projected as the repository of all banking wisdom and healthy banking practices. Such a view that vilifies the title loans industry for charging higher interest rates is patently flawed; it reveals a skewed outlook that misleads the public. Much of regulated banking rests on bigger sized loans attracting apparently lower interest rates with repayments being made in installments over a prolonged period. If such longer term loans were telescoped into their short variety, it would be interesting to see what interest rates these traditional bankers would levy. It has been coolly overlooked that the borrowers wedded to the banking industry are actually shelling out much larger sums and paying much greater quantum of interest over the longer term than their counterparts who avail the cash title loans. Yet, no one has thought it fit to accuse bankers of following predatory lending practices.
If the arguments citing interest payments are skewed there is another angle that has also been misrepresented by critics of the car equity loan or title loans, and that is RISK. The companies giving these loans are shelling out smaller sums for very short periods, often relying on their gut instincts and close knowledge of human nature to assess the good intentions of the borrower they trust will faithfully repay the money in time. Don’t forget that the majority of the borrowers that approach such auto equity loan lenders often carry a bad credit background, and that places them in the higher risk category, and nobody in traditional banking sector will touch them with a barge pole!
People also overlook the fact that even after the lenders of collateral loans or title loans transfer the title of the clients’ cars in their names and mark their lien in the books of the DMV, the vehicles remain in the exclusive possession of the borrowers. The borrower has availed the money and uses the car for the duration of the loan, and the lender is forced to bear three types of risk-the risk of theft of the vehicle, the risk of accidental damage and the risk that the owner may not maintain the car in good working condition, and all these risks have the potential of seriously reducing the salability of the asset in the event of loan default.
From this it becomes clear that the lender of auto collateral loans or title loans is financing a borrower whose income is already stressed, and he has collaterally secured a car that is not under his immediate control and custody. Therefore, when these title loans are sanctioned there is a legitimate compulsion to charge higher interest rates to offset the risk inherent in this type of lending, and also make a profit. The auto collateral loan industry averages interest rates of around 30% APR, which is quite reasonable when you finance under the burden of these serious risks.
Before entertaining thoughts of availing such types of loans the prospective borrower ought to consider the following crucial tips to ensure he makes the right decision backed by sound judgment:
- - Consider such fast car title loans only if he is confident that there is a fund inflow that will satisfy his repayment obligations. If there is no back up fund, the chances of defaulting increase and the borrower may succumb to the temptation of recycling the existing loan with more interest added on.
- - Research you locality thoroughly, get to know your lenders, study their offers, compare rates and zero in on lenders who offer the best deals, backed by a good reputation for customer care.
- - Clarify and quantify all the charges involved in pawn car title loans like processing charges or handling charges and appraisal expenses, and also seek clarification whether the interest rate is within the acceptable band of 20% to 30% APR.
- - Resist the temptation of withdrawing cash up to the full loan eligibility calculated and based on the car’s resale value; take only what is required to see off the financial crisis.
- - If you see less of the lender and get more marketing fizz and pop from the sales people, nobody seems bothered to discuss the loan details and if everybody appears to be in a hurry to get you to sign the dotted line, the chances are that you are dealing with predatory lenders charging exorbitant interest rates-avoid them at all costs.
- - The contract for title loans is a legal document, so try to sit down and read the small print because there may be clauses deliberately inserted that restrict arbitration and deny you recourse to the courts of law to redress your grievances.
- - To the extent possible try to come out of the debt as fast as possible; no matter how hard it may be, try and save cash or keep aside some money that can be used to accelerate repayment. Needless to say, wipe off the loan immediately as your financial situation improves.
- - Explore and consider all options to solve your financial woes; perhaps you can sell some asset or the car itself and get a better deal.
It goes without saying that the both the lender and the borrower who avail the title loans have to act sensibly; the lender must ensure that he follows the laws of the land in letter and in spirit without misguiding the borrower, and strive to provide him all the information that enables the right decision, and the borrower on his part should avail the loan only if he has the capacity and wherewithal to repay the loan in complete sincerity.