Alternatives to Car Title Loans that are less expensive

If you are in desperate need of funds but have poor credit, you may be inclined to accept whatever credit terms are available. For many, a car title loan seems like a viable option.

These loans carry risks that could worsen your financial situation. Before you get a title loan, you should consider alternative debt management options.

How does a car title loan work?

You can get a title loan by putting your car as collateral for a short-term loan. You can keep driving the car you paid off and receive immediate cash based on its value.

Auto title loans are easy to get approved. Bad credit and income are not a problem in most cases, as your car acts as a safety net. However, they are risky, costly and often the source of further financial difficulties in the future.

Disadvantages of getting a title loan for your car

If you own a car, you can easily get a title loan regardless of bad credit or unstable income. But they also have drawbacks.

Fees and Interest

Auto title loans are expensive. When you apply for a loan, in addition to the interest already paid, you usually have to pay a processing fee.

Interest rates on title loans are very high, sometimes in the hundreds. As a result, you may find yourself spending more than the original loan amount. More than half of auto title loans become long-term debt.

Return without payment

If you promise your car is safe and you default on your payments, you could lose your vehicle. The lender can take your car from you until you get it back, and you have no control over when that happens.

Repossessing your car can make it harder for you to make money and worsen your financial problems. Your family may lose safe transportation, which may inconvenience you and your family.About one in five borrowers did not repay their loans.

Alternatives to title loans

You have exhausted all other options before applying for a title loan. Even with poor credit, there may be opportunities to borrow.

Banks and Credit Unions

Banks and credit unions are increasingly offering short-term loans to combat predatory lending (for example, payday and title loans). Local banks and credit unions can help you get a loan, while larger banks are more likely to deny your application.

Microloans are more likely to be approved at credit unions because they are member-owned financial institutions.

Personal loan

Personal loans can be obtained through banks and credit unions, as well as through internet loan companies. Peer-to-peer lenders and loan-seeking investors are two types of online lenders.

Personal loans do not require collateral (like car ownership). Lenders will approve you based on your credit history and income, but you don't need excellent credit. It is also cheaper than a title loan due to the fixed interest rate.

When searching for lenders on the internet, avoid online payday lenders and title lenders. Chances are these companies are not cheap either. Some don't offer credit - they just want your data to be sold or your identity stolen.