(7/9/2010) Car title loans can put you on a collision path with debt and hijack your only means of getting to and from work.
Like payday loans, car title loans are small dollar, short-term, high-interest rate loans.
The short-term loans are secured by the title of a used vehicle. If you cannot pay off the loan when it's due, often within a month, the lender can take your ride.
The Center for Responsible Lending (CRL) says some states posed limits on the loans, but the loans "remain a bad deal for all borrowers" and will "Until a reasonable APR (annual percentage rate) cap is implemented on these high-cost loans. The best thing a consumer can do is to avoid them completely."
The center says, like other small loan lenders car title lenders market their product as a way for a family to overcome a financial emergency, but there's a greater chance a family will be driven into a cycle of debt.
In Missouri, for example, the state auditor found that car title lenders make 3.5 times more renewal loans than new loans each month.
CRL advises, before considering a car title loan, consider these issues:
• Pay attention to the APR. Car title loan rates can range from 84 percent to as much as 300 percent and more. Don't be taken by the "small and easy" initial fee. Consumers often become serial borrowers, taking loan after loan in a downward spiraling cycle of debt.
• Consider your options. Car title loans are pitched as quick and easy ways to meet a financial emergency. Hit the brakes. Instead go to your nearest bank or credit union to check out any alternatives they may have. Perhaps ask your friends or family to help.
• Park your cash in a savings account. Everyone needs a rainy-day account. Start a budget so you know where your money goes and where you can cut back. Deposit those cutbacks in a savings account.
• Also steer clear of other predatory loans. Payday loans, refund anticipation loans, and overdraft loans are not better options.
• Avoid forced arbitration clauses. If you must take out a car title loan as an absolute last resort, avoid any forced arbitration clauses which prevent you from taking any disputes to court.
• Lobby Congress to enact a 36 percent APR cap. Do your part as a concerned consumer and citizen by contacting your local, state and federal representatives and ask them to put a cap on the interest rate car title lenders can charge.
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