Car title loans are available in 19 states, including Illinois, and can be one of the most precarious types of automotive financing for car owners. With interest rates that can sometimes be as much as 400% (Yes, you read that right – 400% interest!!), car title loans often seek to prey on the desperate or the uninformed. Chicago drivers looking for quick cash, especially during times of financial emergencies, often see car title loans as a viable solution; however, they come with significant risks that you should fully understand before you take out that loan.
A car title loan, as the name implies, is a loan that is secured with your vehicle’s title. Because the loan is secured with your car, most car title lenders offer loans to drivers even with the worst credit. Some don’t even require proof of employment. However, the triple-digit interest rates makes this leniency very, very expensive! In some states, such as Illinois, there is no limit to the amount of interest a lender may charge.
For a loan of $1,000, with the super-high interest rates, at the end of 30 days, you may owe $1,250. If you aren’t able to pay the full amount, then you must pay at least the interest – $250. However, you still owe the original loan amount of $1,000 and the next month will be in the same boat. This is wear the trap lies. Chances are, if you’re in a situation that requires a car title loan, you won’t have the ability to pay the full amount off in 30 days. So, instead, you will be forced to pay those exorbitant interest rates over and over and over again, or have your car repossessed.
Repossession is a very real fear. Car title loan companies aren’t like your credit card company or your landlord, with a couple of days grace period. Miss one payment and you can be sure to wake up the next morning missing your vehicle. Add to this fact that most car title lenders only offer up to 60% of your car’s value, and you could lose your vehicle for only 60% of the value, plus have paid several months of interest that actually equaled more than the loan amount!
Plus, don’t let the representatives fool you by quoting monthly interest rates. If you’re considering a car title loan, be sure to fully understand your interest rate. Oftentimes car title lenders will tell Chicago drivers the monthly interest rate, to make it sound less expensive. If you are quoted a monthly interest rate of 9%, that may sound pretty good, especially if you have bad credit. However, when you do the math, that’s actually an annual interest rate of 108%!
Of course, there may be emergency situations when a car title loan is your only option. Just be sure to go into the loan fully understanding what you’re getting yourself into and the risks involved.