A quick fix is usually temporary. And, given the temporary nature of quick fixes, it’s usually best to avoid them. So it is with short-term loans taken out by using your car as collateral. If you’re tempted by a title loan, it’s likely because you’re facing a bill that’s come due for something like a utility or credit card.
But you’ll likely get into a cycle of month-to-month debt that has you paying 300% in APR, or annual percentage rate.
Lynnette Khalfani-Cox, writing for AARP, quotes the director of a nonprofit legal organization that often represents people facing financial problems:
“A loan is when you have the ability to repay. But car title lenders don’t even assess that. So that’s called loan sharking. And loan sharking means tricking someone into a debt cycle that they can’t get out of. The lender just wants you to keep paying interest.”
Long story short: If you borrow, say, $1,000, you’ll probably end up paying $3,000 to $4,000 back to the lender, according to Khalfani-Cox’s report, because of the high interest rate and short-term nature of the repayment period.
In the worst situations, borrowers’ cars may even get repossessed by the lender.
Bad Idea? Using Your Car To Get A Short-Term Loan