Title loans are predatory by nature because they have exorbitantly high interest rates. Individuals and businesses love it because it does not require any proof of income neither does it perform credit checks, making it quite easy to access loans like these. Since the ridiculously high rates of interest could be detrimental to your personal finances and even your sanity, you should preserve such interest rates only for dire emergencies.
It is said that one out of every six borrowers who take title loans end up getting their vehicle repossessed. If the borrower is not able to repay the loan in the agreed time, then the lender has the legal right to resell the car in order to recoup their outstanding loan balance. There are certain states that require lenders to surplus amount to be passed to the borrower, but this is not so in many states and borrows stand to lose a lot more than they borrowed under these circumstances.
HOW TO WARD OFF THE REPO MAN
If you are planning to take a title loan, come up with your own plan to make sure you don’t get caught in the unfair debt. Here are three important things to do before you sign up for a title loan.
- LEARN THE DETAILS OF YOUR TITLE LOAN
Do not get caught by surprise. Understand and know all details of your loan. Make sure to read this guide on title loans to reduce your risk of dealing with unscrupulous lenders. Ask these questions to your lender and have them point the information on the agreement of the loan and keep it underlined for further reference.
- Monthly rate of interest on the loan
- Exact fees to be charged on the loan besides the interest
- If it is possible to roll the principal over to the next month in case the whole amount cannot be paid off in 30 days
- How many times the principal can be rolled over to the next month
- If the state requires the lenders to inform borrowers before repossessing the vehicle to give one last chance to pay the loan
- Does the state have laws for lenders to allow borrowers to sell off their car to so they can pay off the remaining debt?
- LEARN YOUR STATE’S LAW CONCERNING TITLE LOANS
It is said that title loans are legal only in 20 states. In these states, they have varying laws concerning title loans. Some states give free reigns to the lenders while others put caps on the interest rates and give outlines on who to carry out a possible repossession. Always make sure your lender and the contract strictly adheres to the law of the state. Contact your state Attorney General office if you feel you they treat you unfairly or illegally. You can always sue your lenders and gain punitive damages.
- SKETCH OUT YOUR REPAYMENT PLAN
Sketch out a plan on how to pay off your title loan. Prepare yourself financially when the payment of the principal and one month’s interest rate comes your way by the end. The faster you get this over with, the lesser money you will find yourself flushing down the toilet.
In certain cases, if you cannot pay the loan even after the first term, you can opt to roll the principal over and pay the rate of interest. Before you do this, find out exactly how many times you can roll the loan over because lenders always have their own rollover limits. Save enough money before the last due comes.
You can start saving by cutting out of your personal budget so you can save a lot faster. Downgrade some of the luxuries that you are enjoying right now, like the number of times you eat out with your spouse or friends, your internet service, your shopping, etc.
Once you have successfully paid off your loan, you can now start saving a small reserve for other financial emergencies like these. You can start by putting away a small amount of money each month as your own personal emergency fund. Before you know it, you can actually end up with a substantial amount of money if you save consistently. Even a $ 20 paycheck can amount to a lot if you are consistent.