Car title loans ... be careful

Kathy Smith

The growing advertising for car title loans has really been on the rise. Advertisements on television, radio and the newspapers for car title loans have been increasing for the last several months. And the ads are very appealing. They make the loan sound like the easiest thing in the world, and they give the impression that it’s not a big deal at all, a simple solution when you are in a financial crunch.

That is what the worry may be. When you have an appealing ad for a product that can be very dangerous, there’s a good chance someone will get hurt. The advertisers are even making a point to have people of all ages describe how wonderful car title loans are, increasing the chances that folks of all ages will consider a car title loan as a option.

So what’s wrong with car title loans?

Two things: 1. High cost and 2. Risk, you could lose your car.

Car-title loans are small loans “secured” by the consumer’s car or truck, usually for $200 to $400 or so. The vehicle is “collateral” and it can be “repossessed” by the lender if the borrower defaults on the loan, or fails to make payments. The lender actually keeps an extra set of keys to the vehicle, and may start possessing a vehicle if the borrower is late in making even one payment.

Borrowers pay astronomical interest rates. There have been some companies that have had interest rates up to 360 percent for car-title loans. There is no justification for high interest rates, because the loan is secured by the car or truck.

High interest payments are due repeatedly: If a person borrows $300 at 360 percent interest, for example, he or she will have to pay $44.55 of interest in just 15 days, and have to pay interest again and again each 15 days, until the $300 loan is paid. Many consumers can’t pay back the loan right away, and they just pile up repeated interest costs, or take out still more loans. Their financial situation only gets worse and worse.

Consumers face losing their vehicle: The first payment usually is due in 15 days. But if even one payment is late, the lender may start action to repossess, which could occur as quickly as 30 days. Many consumers have lost their cars or trucks.

The bottom line: Don’t do it! A car title loan may not be a good solution.

And when you hear the ads, be sure to encourage your kids or your friends to be skeptical. Most of the ads really are too good to be true.

By taking control of your money, you will never be tempted to resort to a car title loan.

Kathy Smith is the Parker County extension agent. Her column appears Sundays. She may be contacted at (817) 598-6168.