A car loan, also known as a pink slip loan, is a loan where the borrower’s vehicle is used as collateral against the debt. The amount of the loan depends on the value of the vehicle and is usually capped at around 50% of the value of the vehicle. The interest rates are usually much higher than those of traditional bank loans, often 300% to 400% and sometimes up to 650%.
The borrower must own the vehicle free of charge and be free to present a lien to the lender. Other required papers usually include valid ID, current vehicle registration, proof of insurance, proof of residency, and proof of income. Some lenders also need keys to install the vehicle or even install a GPS tracking device. See Get a car title.
People look for titles from car loans when they urgently need money and believe that their options for increasing them are limited. Car loan loans are very expensive compared to other types of loans. A loan of $ 1,000 at 25% interest per month costs the borrower $ 1,250 in 30 days (plus any other costs charged by the lender). Those who cannot repay the loan risk losing their car.
That is why potential borrowers should investigate other cash-raising alternatives before choosing a car loan. Here are eight options to investigate.
1. Short-term bank loan
Before a loan with a triple interest rate on a car loan is taken out, the borrower must exhaust traditional loan options. A borrower with a vehicle and a job must first apply to a local credit association or bank. The most expensive bank loan is much cheaper than a title loan, and some banks will provide collateral loans to borrowers with less than stellar credit, so that you can pledge your car at bank-level interest rates.
2. Credit Card Cash Advance
Cash advances are notoriously expensive, but the interest rates do not reach triple digits. A borrower with reasonable certainty about her ability to repay the loan within a few weeks (the normal repayment period for a registered loan) and a credit card with available credit may be able to access the funds at much lower costs.
There is a risk that the balance will take some time to pay off and the interest charges will increase in the meantime. Each cash advance must be entered into with a firm commitment to redeem a short-term plan. On the other hand, borrowers often end up with car loans, with even higher costs.
3. Peer-to-peer loan.
A peer-to-peer loan is financed by investors, not a bank, so the approval rates are much higher than those for bank loans. Even for borrowers with poor creditworthiness, the rates increase around 30% per year (plus start-up costs of up to 5% of the loan amount). The minimum loan amount can be higher than the minimum car loan amount, so there is a risk of borrowing more than necessary (but prepayment is permitted without penalty). For more information on financial limits, see peer-to-peer financing.
4. Loans or gifts from friends or family
Friends and family may be willing and able to help in cash in an emergency. If a gift is not suitable or possible, the loan can be handled just like any other, with an interest rate, a repayment plan and a signed agreement that puts the whole thing on the table. In fact, the borrower can offer the vehicle as collateral if it makes the lender more comfortable offering the loan. The main difference is that the interest rate should not be in the triple digit. It can be a modest one-digit speed, or even zero.
5. Extra part-time job
If it is possible, the borrower can look for extra work to earn the necessary money. Some people are very creative in finding opportunities to earn cash, and arrange with business owners to help in a certain way on a one-off or ongoing basis. The only requirement is effort. No job will be found by the person who is not looking for it and asking around.
6. Social services and charities
State welfare agencies, also called general auxiliary offices, offer cash emergency aid to those who are eligible. Help can also be available in the form of food stamps or other free or reduced costs (such as childcare or telephone service). A person in need who is on probation or probation must contact his or her supervisor for a list of sources. Churches and other charities may have a system to pay certain bills for needy people, in addition to the usual help with housing, food, education, and job search.
7. Negotiating with creditors
A borrower who has difficulty paying a bill must call the lender to discuss the situation. Many will offer alternative payment arrangements, a lower interest rate, a discount, late fees or other concessions, depending on the history and situation of the debtor. See Negotiation of a debt restructuring for tips.
8. Credit and debt assistance
Any person who regularly fails in cash – especially someone who is trapped in a cycle of paying high prices for quick withdrawals – must meet a certified financial adviser. Low-cost and free assistance is available in all 50 states.
The counselor can devise a strategy to save costs, make ends meet, lose debts and save for a rainy day. If the debt is overwhelming, a debt management plan may be in order. At the very least, the counselor can help the borrower understand the real costs of short-term loans and find out and qualify for better options. SharpenToday. org is an excellent starting point.
The bottom line
car loan titles are considered by many in the financial sector as “robbery loans” because they are exorbitantly expensive and focus on the lowest income demographic data – people who have the most limited financial resources and can afford the least in high costs to pay. It’s not a big piece of the imagination to think that someone who is desperate today for $ 1, 000 can have a hard time repaying that amount plus an extra $ 250 at the end of a month. It’s known that loans with a title quickly lock up a borrower in a cycle of never-ending debts. Some borrowers who cannot meet the loan requirements lose their vehicles.