Car title loans are marketed by creditors as a savior for the little guy; but these high interest loans are much like payday loans in that they can carry a triple-digit annual interest rate and are very difficult to repay in full when you’re already struggling financially.

Let’s take close look at car title loans and how they work.

  1. Car title loans typically have an annual interest rate of 300% or more.
  2. The debtor is allowed to borrow only 30% to 50% of the vehicle’s value.
  3. Most car title loans must be paid within one month and if it is not repaid by the due date the loan is rolled over to the next month by paying a fee.  This can go on for so long that a debtor can end up paying more in fees than the original loan without ever paying off the actual loan.
  4. If the borrower fails to pay off the car title loan or pay the rollover fee, the car can be repossessed and sold by the lender.
  5. One last nasty surprise is that if a cart title lender repossesses the car and sells it, they can keep the full amount of the sale, not giving the borrower one dime.

The important point to remember about car title loans is that it is something you should never do. If you find yourself in a situation where you believe you need to take out a car title loan, you are probably too deep in debt and a loan is not going to save you.  When debtors reach a point where they need to pawn or borrow against their assets such as a paycheck or vehicle it is probably time to speak with a bankruptcy attorney.