What Are Car Title Loans?
Auto title loans are legal loan agreements that are subject to rules and restrictions under the law. From loan cycle restrictions to repossession guidelines, state laws are very specific regarding auto loan agreements. These protections are put in place to protect low-income borrowers from being burdened by high-interest loans that can roll over month after month. To prevent a person from crumbling beneath the burden of such financial strain, lenders are generally only allowed by law to roll an auto title loan over six times.
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Identification
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According to SCJustice.org, a car title loan is a 30-day (or more) loan that is secured with the title of a vehicle. Described as a short-term loan, a car title loan must be repaid according to the term of the loan. Failure to repay the loan will result in the lender taking ownership of the vehicle.
Considerations
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A vehicle does not have to be new to qualify for a car title loan. It only needs to be of value. To determine the value of a vehicle, lenders generally use online resources like Kelly Blue Book or Edmunds.com. Once the value of the vehicle is determined, the car title is turned over to the lender, and the loan contract is signed.
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Repossession
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A car title loan allows the borrower to retain physical possession of the vehicle; however, the title is legally transferred to the lender based on the terms outlined in the loan agreement. If the lender does not remit payment, the car will be repossessed if the borrower does not return the vehicle to the lender of his own accord.
Size
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A car title loan can be for any amount; however, the loan amount usually will not exceed the value of the car. If the borrower has fair credit, he may qualify for a higher loan amount; people with poor credit rarely qualify for a loan above the value of the vehicle.
High-Interest Loans
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Lenders benefit from high interest and the repossession of cars from failed loans. For example, SCJustice.org notes some car title lenders taking at least 300 percent over the course of car title loan. Based on this interest rate, a $600 loan would yield $150 in interest.
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