Car title loans can get money in your hands quickly, assuming you have a paid-off vehicle to use as collateral. However, the short-term cash solution can lead to long-term problems, as these loans have high rates of interest and exorbitant fees that can add up to an effective cost of several hundred percent per year. Miss a payment, and the lender can take your car. Getting out of a title loan can mean making difficult choices about where you'll find the necessary funds.
Avoid Extensions
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Title loans often are for 30 days. If you can't pay the loan back in time, you generally can extend the loan another 30 days -- but you'll have to at least pay the accrued interest and fees, and you'll incur new charges every time you renew. That's why paying the loan back as fast as possible is crucial. The longer you extend the loan, the more you'll find that the title lender becomes one of the most important monthly bills you have if you hope to avoid repossession.
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Check the Papers
Your <ahref="http: www.nbcnews.com="" technology="" pay-2-140-borrow-950-thats-how-car-title-loans-1c8703205"=""> </ahref="http:>title loan paperwork or state law may offer relief in some case. Because these loans are regulated on the state level, you may be protected against some of the title lender's most destructive tactics. For example, your state may prevent the company from pursuing remedies besides repossession, which can come in handy if the car breaks down and your title loan is suddenly for more than the vehicle is worth. Also, make sure that you're not being charged more than the law allows. Pay particular attention to this if you're in the military, since the Military Lending Act means that your interest rate for car title loans generally can't exceed 36 percent per year regardless of where you live.
Other Financing Options
While car title loans may seem like a method of last resort, the Pew Charitable Trust reports that most borrowers recognize they could find another way of getting the money if title loans were not available. If you've already received a title loan and can see that paying it off will be difficult, reconsider your alternatives before agreeing to renew. Cutting back on basic expenses, borrowing from family and friends, seeking loans from your employer and pawning personal possessions may be unpalatable, but in the long run the cost may be less than what you'll pay for a title loan. Avoiding an uncomfortable conversation, or the loss of a personal item, can seem far less significant than the potential loss of your car. Indeed, according to the Pew report, nearly half of those who took title loans wound up using one or more of these methods to pay off the balance anyway.
Tip
If you're expecting a windfall, say from a tax refund, you can use that to pay off the title loan and regain your clean title. Loans from a retirement plan also can provide the cash to settle your balance if your administrator allows them, though if you don't pay the plan back you'll just be paying the Internal Revenue Service instead of the title lender.