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Why car title loans are a bad idea
At times, the best of us get strapped for cash; we may have no credit or bad credit (just like they say in the commercials), which keeps us from getting small loans from a bank or some other more traditional means.
A title loan offers you cash from the lender, in return you sign over the title of your paid for car to secure the loan. Typically, these loans are due back in full 30 days later. There's no credit check and only minimal income verification.
It sounds pretty straightforward, but borrowing from these places can lead cheap mens gold bracelets to a repossession of your car and a whole lot of financial trouble.
Interest rates that make credit card companies blush
Car title loans have been lumped into the "predatory lending" category by many consumers. Non profit organizations such as Consumer Federation of America (CFA) and the Center for Responsible Lending have issued detailed reports outlining some of the title loan issues that the public should be leery about.
One of the biggest issues with these loans is interest rates. Many people dislike credit card interest rates, which average between the mid to high teens for most Americans. Car title loan interest rates make complaining about credit rates seem ludicrous.
Car title lenders are in a different category than credit card companies or banks and work around usury laws. Thus, title loan lenders are able to charge hermes bag replica triple digit annual percentage rates (APRs). Yes, triple digits. It's not an exaggeration to see 250% APR and higher on these car tile loans and only a handful of states have passed strict laws that prohibit exorbitant percentage rates.
Even if your credit card company is charging you a high interest of 25% APR, it's nothing compared to car title loans. AOL Autos: Most popular used cars
By federal law, title loan lenders have to disclose the interest rates in terms of the annual percentage. If you have to get a title loan, make sure they don't just give you a quote of the monthly percentage rate, they have to give it to you as an APR. If they are unclear about the rates, which many can be, just know that a monthly rate of 25% is equivalent to a 300% APR.
Fees and interest only payments
In addition to high interest, these car title loans usually include a number of fees that add up quickly. These include processing fees, document fees, late fees, origination fees and lien fees. AOL Autos: Safest cars
Sometimes there is also a roadside assistance program that borrowers can purchase for another small fee. Some lenders have even gone so far as to make the roadside assistance mandatory. The cost of all these fees can be anywhere from $80 to $115, even for a $500 loan.
Most of these fees are legal, except one that lenders sometimes charge, the repossession fee. Lenders are not allowed to charge you to repossess your vehicle, but some still do. AOL Autos: Top minivans
As if high interest rates and a mountain of fees weren't enough, lenders also give borrowers the option of interest only payments for a set period of time. In these cases, the loans are usually set up for a longer period of time (compared to the typical 30 days) and the borrower can pay the interest only on the loan.
These types of payments are called "balloon payments" where the borrower pays the interest of the loan each month and at the end of the term they still owe the full amount of the loan.
The CFA reported that one woman paid $400 a month for seven months on an interest only payment term for a $3,000 loan. After paying $2,800 in interest, she still owed the original $3,000 in the eighth month. AOL Autos: Most popular crossover vehicles
Rolling over and repossession
If you think most of the people who take out these loans pay them back in full after one month, think again. Because of the high interest and the fact that these lenders cater to low income borrowers, many people aren't able to pay back their loans in the 30 day period. This is called "rolling over" the loan.
The terms of these loans are crafted to keep borrowers in a cycle of debt and bring customers either to the verge of repossession or to actual repossession. Not being able pay off the initial loan and then renewing it the next month costs borrowers even more money in interest, on top hermes replica bracelet of the original amount they've already borrowed. AOL Autos: Used luxury cars
Let's talk about repossession for minute. The CFA reported that, of the people they interviewed in their 2004 study, 75% had to give the title loan lenders a copy of their car keys. Some companies started the cars to see if they worked and took pictures of the vehicle even before a customer filled out the loan application.
A company based in Arizona said they have GPS systems installed on the cars so they can track the cars and shut them off remotely if they don't receive payment on time. That may be an extreme case, but these lenders take a customer's promissory signature very seriously. If you can't pay, they will come looking for you and your car.
The concerns for having your car repossessed are obvious. How do you get to work, drop off the kids at school, pick up groceries or go out on the weekends without a car? As if those scenarios weren't bad enough, owning a car can be some people's biggest financial asset. If the car is taken away, so goes the money it was worth.
Some states have laws that force the lenders to pay you the difference of the loan once a lender has repossessed and sold your car, but hermes h bracelet replica some don't. It is possible to default on the loan and not get any money back for your car, even if you only borrowed a few hundred dollars.
This occurs because car title loans are also over secured. Typically, the maximum amount most lenders will give you is 25 to 50 percent of what your car is actually worth. However, if you can't pay back the loan they may be able to sell your car and keep 100% of the profit. Some lenders won't take possession of a vehicle but instead take the customer to court for the money. Although this may be partly true, signing over one of your most valuable assets for several hundred dollars is not the only option.
At times, the best of us get strapped for cash; we may have no credit or bad credit (just like they say in the commercials), which keeps us from getting small loans from a bank or some other more traditional means.
A title loan offers you cash from the lender, in return you sign over the title of your paid for car to secure the loan. Typically, these loans are due back in full 30 days later. There's no credit check and only minimal income verification.
It sounds pretty straightforward, but borrowing from these places can lead cheap mens gold bracelets to a repossession of your car and a whole lot of financial trouble.
Interest rates that make credit card companies blush
Car title loans have been lumped into the "predatory lending" category by many consumers. Non profit organizations such as Consumer Federation of America (CFA) and the Center for Responsible Lending have issued detailed reports outlining some of the title loan issues that the public should be leery about.
One of the biggest issues with these loans is interest rates. Many people dislike credit card interest rates, which average between the mid to high teens for most Americans. Car title loan interest rates make complaining about credit rates seem ludicrous.
Car title lenders are in a different category than credit card companies or banks and work around usury laws. Thus, title loan lenders are able to charge hermes bag replica triple digit annual percentage rates (APRs). Yes, triple digits. It's not an exaggeration to see 250% APR and higher on these car tile loans and only a handful of states have passed strict laws that prohibit exorbitant percentage rates.
Even if your credit card company is charging you a high interest of 25% APR, it's nothing compared to car title loans. AOL Autos: Most popular used cars
By federal law, title loan lenders have to disclose the interest rates in terms of the annual percentage. If you have to get a title loan, make sure they don't just give you a quote of the monthly percentage rate, they have to give it to you as an APR. If they are unclear about the rates, which many can be, just know that a monthly rate of 25% is equivalent to a 300% APR.
Fees and interest only payments
In addition to high interest, these car title loans usually include a number of fees that add up quickly. These include processing fees, document fees, late fees, origination fees and lien fees. AOL Autos: Safest cars
Sometimes there is also a roadside assistance program that borrowers can purchase for another small fee. Some lenders have even gone so far as to make the roadside assistance mandatory. The cost of all these fees can be anywhere from $80 to $115, even for a $500 loan.
Most of these fees are legal, except one that lenders sometimes charge, the repossession fee. Lenders are not allowed to charge you to repossess your vehicle, but some still do. AOL Autos: Top minivans
As if high interest rates and a mountain of fees weren't enough, lenders also give borrowers the option of interest only payments for a set period of time. In these cases, the loans are usually set up for a longer period of time (compared to the typical 30 days) and the borrower can pay the interest only on the loan.
These types of payments are called "balloon payments" where the borrower pays the interest of the loan each month and at the end of the term they still owe the full amount of the loan.
The CFA reported that one woman paid $400 a month for seven months on an interest only payment term for a $3,000 loan. After paying $2,800 in interest, she still owed the original $3,000 in the eighth month. AOL Autos: Most popular crossover vehicles
Rolling over and repossession
If you think most of the people who take out these loans pay them back in full after one month, think again. Because of the high interest and the fact that these lenders cater to low income borrowers, many people aren't able to pay back their loans in the 30 day period. This is called "rolling over" the loan.
The terms of these loans are crafted to keep borrowers in a cycle of debt and bring customers either to the verge of repossession or to actual repossession. Not being able pay off the initial loan and then renewing it the next month costs borrowers even more money in interest, on top hermes replica bracelet of the original amount they've already borrowed. AOL Autos: Used luxury cars
Let's talk about repossession for minute. The CFA reported that, of the people they interviewed in their 2004 study, 75% had to give the title loan lenders a copy of their car keys. Some companies started the cars to see if they worked and took pictures of the vehicle even before a customer filled out the loan application.
A company based in Arizona said they have GPS systems installed on the cars so they can track the cars and shut them off remotely if they don't receive payment on time. That may be an extreme case, but these lenders take a customer's promissory signature very seriously. If you can't pay, they will come looking for you and your car.
The concerns for having your car repossessed are obvious. How do you get to work, drop off the kids at school, pick up groceries or go out on the weekends without a car? As if those scenarios weren't bad enough, owning a car can be some people's biggest financial asset. If the car is taken away, so goes the money it was worth.
Some states have laws that force the lenders to pay you the difference of the loan once a lender has repossessed and sold your car, but hermes h bracelet replica some don't. It is possible to default on the loan and not get any money back for your car, even if you only borrowed a few hundred dollars.
This occurs because car title loans are also over secured. Typically, the maximum amount most lenders will give you is 25 to 50 percent of what your car is actually worth. However, if you can't pay back the loan they may be able to sell your car and keep 100% of the profit. Some lenders won't take possession of a vehicle but instead take the customer to court for the money. Although this may be partly true, signing over one of your most valuable assets for several hundred dollars is not the only option.
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