A car title loan is a short-term loan (using your car as collateral) that’s intended to be no longer than thirty days. If you don’t repay the car title loan your vehicle can be seized and sold to pay off the loan. Car title loans are usually targeted at low-income individuals and come with very high interest rates, as much as 22% interest for one month or 300% interest for one year.
Although car title lenders write most loans for just one month, they will usually accept an “interest only” payment at the end of the month and rollover the loan to the next month. Like payday loans, these loan rollovers become expensive and eventually unmanageable. For example, a $600 car title loan could cost approximately $150 for one month.
This means the borrower would owe $750 at the end of the month. If the borrower only pays $150 (interest only) at the end of the month, the cart title loan would rollover to the next month and the borrower would then owe $750 again. Of course the car title lender will accept $150 (interest only again). If a borrower paid interest only for six months they would pay $900 in interest without ever paying down the principal balance (the original amount borrowed) of $600.
You can see how a car title loan can quickly get out of hand.
Many borrowers never pay off their car title loans even after they’ve paid hundreds of dollars in interest and they often end up losing their cars anyway. If you are in a car title loan fiasco and struggling with other types of debt you may want to consider bankruptcy. Car title loans may be dischargeable in bankruptcy, contact a Dallas-Fort Worth bankruptcy attorney to discover your bankruptcy options.