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Why car title loans should be avoided

During tax season, it is popular for tax preparation companies to advertise refund anticipation loans to placate people who just can’t wait for their refund checks to arrive. These loans are high interest, high risk loans that consumers should stay away from, but given the advertised sales for a number of items (particularly vehicles), it is not surprising that these loans have such a following.

For those who are not in the market for a car, those who need money to meet a temporary crisis may be tempted by car title loans. These are high interest loans that are based on the value of one’s car. According to the American Association of Retired Persons (AARP), car title lending generates $5.2 billion worth of business per year.  

More importantly, consumers pay $3.6 billion each year in interest. For example, for each person who borrows $1000 from a car title loan company, they likely end up paying about $3000 to $4000. With borrowers paying so much in interest, it is no wonder that more than 7,000 car title lenders operate across the United States.

The danger that many consumers don’t think about is they may never catch up and pay off their loans, since they are not necessarily based on their ability to pay off the loan. If the loan payments are not current, the consumer can lose their car. This can be particularly devastating for those who depend on their cars to get to work and make a living.

With that said, it is essential avoid car title loans altogether. But if you are afraid that you may lose your car because of a title loan default, an experienced bankruptcy attorney can advise you.

 

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