October 3rd, 2008 by Reed Allmand 
Texans take out millions of dollars in car title loans each year. But what may seem like an easy and logical short term solution for money troubles, often turns out to be a long-term disaster for financial health.
How Car Title Loans Work
A car title loan is usually a 30 day loan secured with your car title which you leave with the lender along with an extra set of keys. Anywhere from $601 – $2500 is loaned to the owner of the vehicle at a very high interest rate, as much as 25% for a month. At the end of the loan term (usually a month or less) the debtor must repay the loan plus interest. If the debtor is unable to repay the loan at the end of the loan’s term, the lender will accept the interest payment and rollover the loan to a new term with a higher interest rate. For example let’s say you take out a loan for $600 on November 1 st with a repayment term of 30 days. Let’s also imagine that the interest on the loan is $150. At the end of the 30 day term you would owe $750. If you cannot repay the full amount, the lender will accept the interest payment of $150 and rollover the debt to the next month. What this means is that you would owe $750 next month. The lender is only allowed to rollover a debt 6 times and as you may have guessed, most debtors don’t pay off their loans immediately. Let’s say that your loan was renewed 5 times. After five months of only paying the interest on this loan, you would have paid $750 in interest payments alone, never paying down the balance. If at that point you decided to payoff the loan you would pay $1350 for a $600 loan.
If you fail to repay the loan, the lender can repossess your vehicle and resell it to recoup their costs. They cannot sue you for the money.
Things To Consider
Before taking out a car title loan you need to consider all other sources of credit.
Do you have family members or friends willing to loan you money?
What about your credit card?
Consider all other options before taking out a car title loan because these types of loans are very expensive in the long run.
(source: http://www.responsiblelending.org/issues/cartitle/)
About Reed Allmand
Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."
View all posts by Reed AllmandSubscribe
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