Get a Title Loan for Christmas, Regret it All Year Long

Imagine, if you will, a commercial that starts out with a sparse room with a sparsely decorated tree. As the image zooms out, the speaker suggests getting a title loan to make the holidays easier. Cut to a picture in a picture montage of people saying how easy their title loan was to get meanwhile the room in the background is filling up with decorations and presents. This is an actual commercial I just watched. A commercial like this could make a person consider taking their already paid for car to a title loan office and getting a loan against it. But, is it really a good idea?

So, what exactly is a title loan?

According to Wikipedia.org, a title loan is a loan where the borrower provides their car as collateral.This loan is secured with your car meaning that if you do not pay off your loan, the lender will take your vehicle.

How do you get a title loan?

Title loans are pretty easy to come by. As the commercials say, all you need is a car. (Actually, you need a regular income as well so you can pay the money back.) You need to own that car free and clear with no liens or other loans on it.

How much money can I borrow with a title loan?

Title loan lenders lend an average of 50% of the resale value of the car. This means that if the resale value on your car is $3,000.00, they will lend you $1,500.00.

What is a typical interest rate of a title loan?

The interest rates of title loans are high. Interest rates can easily be 300%. Like cash advance loans, the amount borrowed is due in full in one payment. If the customer does not have that money to pay back, then they have to roll the balance over into a new loan. This can go on for years. For areas that regulate how much interest can be paid on a loan, the title loans are sale-leaseback transactions where the borrower sells their car to the lender and leases it back. These lease payment disguise interest payment. The borrower continues to lease the car until they can afford to repurchase their car for the original amount borrowed. Chances are, by the time you are done paying off the loans with interest, or lease payments, you would have spent $4,500.00 or more.

In what cases are a title loan a good idea?

The only time a title loan might be a good idea is when you know for a 100% certainty that you will receive a bonus or payment equal to or more than the amount, you are borrowing, within a certain amount of time. This way you will be able to pay the loan in full with little to no interest paid.

Are there any alternatives to securing a title loan?

Instead of getting a title loan for Christmas (or any other gift-giving occasion), you can:

Be creative in gift giving.

Sell a car or other possession you do not use or need.

Get a second job.

Find creative ways to make money.

Bow out of gift giving this year.