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You may have seen ads like this. If you need cash quickly, and have had trouble getting a loan from a traditional financial institution such as a bank, you may think the answer is to take out a car title loan. The Federal Trade Commission (FTC), the national consumer protection agency, advises you to step on the brakes and consider other options. With a car title loan you will put your vehicle at risk: you may lose one of your most valuable possessions and your means of transportation.
A car title loan - also known as a pink-slip loan, or title pledge or pledge - is a low-rate, short-term, high-rate loan that uses the lien-free title. of your vehicle as collateral. It is a very expensive form of credit. Some lenders offer car title loans if you have accumulated value on the vehicle, even if you do not have a lien-free title. Typically, these loans are spread over 15 or 30 days and have a three-digit Annual Percentage Rate (APR) - a much higher interest rate than those that apply to most other forms of credit. Car title loans are typically for an amount that ranges from 25 to 50 percent of the car's value. The average amount of these loans is between $ 100 and $ 5,500. But some lenders can extend loans for $ 10,000 or more.
How are these loans applied for?
Lenders who give credit for a car title operate in customer service locations and on the internet. Whether you apply for the loan in person or online, you will be asked to complete a loan application. Consumers who want to apply for the loan online will be given a list of business premises that offer car title loans near their homes. To complete the transaction, you will need to present your car, the lien-free title, a personal photo ID, and proof of insurance. Many providers also require the delivery of a duplicate set of car keys.
When you apply for a car title loan, it is important that:
Review the terms of the loan. Lenders who credit your car title must give you the terms of the loan in writing before you sign the loan agreement. Under the Truth in Loan Operations Act applicable at the federal level, car title loans have the same treatment as other types of credit: lenders must report the cost of the loan. Specifically, providers must inform you of the finance charge (expressed in a dollar amount) and the annual percentage rate or APR (the cost of credit on an annual basis). The annual percentage rate or APR is based on several factors, including the amount you borrow, the interest rate and credit costs that apply to you, and the length of your loan.
Be careful with those "extras" that can increase the cost of the loan. In addition to the costs of the loan, you may have to pay additional costs such as a car service plan. The cost of the plan can be based on the value of the loan. If you are required to purchase extras, their value will be part of the finance charge / APR, which will further increase the cost of credit. Plus, the extras themselves can be expensive - and they can add significant amounts to your loan.
Once the loan is approved, you receive the money and the lender receives title to your car. You will not be able to get your car title back until you finish paying off the loan.