Bad Credit Borrowers and Car Title Loans

A car title loan may be a quick way to raise some needed cash but it could have devastating consequences if the loan cannot be repaid.

May the consumer beware

At Auto Credit Express we feel that an informed consumer is our best customer. When visiting our web site, you’ll find information that describes the bad credit car loan process as well as such valuable tools as an auto loan calculator. We hope that by providing our customers with this information it will help them make an informed decision. There are other types of loan products, however, that aren’t mentioned and one of these is the car title loan

The car title loan

Given the current economy, it’s safe to assume that many consumers, frantic for cash, will likely consider taking out a car title loan. But what, exactly, is a title loan?

Car title loans are short term personal loans that are secured by the title to your vehicle. They are designed to appeal to consumers who need cash quickly and have no other source for funds. In order to qualify for this type of loan, the vehicle must have a clear title (one that is paid off and is not being financed). Typical loan amounts are based upon the value of the car (usually with a maximum amount based on 50% to 55% of the vehicle’s book value), while the duration of the loan is usually 30 days. Interest rates, although regulated by the states, average about 25% (according to a 2005 study done by The Consumer Federation of America). In addition, the loan company usually charges an origination fee. Many of the storefront locations these companies operate out of also offer check cashing services and, in some cases, pawn loans.

Loan scenario

As an example, let’s look at a $1500 car title loan. Once you furnish the loan company with your free and clear car title as well as an extra set of (if you default on the loan, the car is theirs – regardless of how much it’s worth), you’re given the loan amount less the $15 origination fee. You sign the loan agreement that states you’ll pay them $375 in interest (25%) plus the $1500 in principal in 30 days. If you don’t have the entire amount in 30 days (the entire amount is due and partial payments aren’t accepted), the loan company will allow you to roll over the loan for another 30 days, provided you pay them the interest amount. Most states will allow this type of rollover to occur at least three times.

The true cost

Taking a look at the loan, if you ended up rolling over the loan twice, for a total of 3 months, it would look like this:

1.    $15.00 origination fee
2.    $1125.00 interest charges

The total comes to $1140.00 in interest and fees to borrow $1500.00. This equates to an annual rate of 75%. And while this may seem bad enough, the consequences of not paying the loan are even worse – losing your ability to commute to work and earn an income.

The Bottom Line

At Auto Credit Express, we believe that before you consider a car title loan, you should do your research and determine if you can afford the risk involved. This type of lending is generally considered to be predatory and should be avoided by most consumers – especially those who purchased their car with a bad credit car loan and are just now getting back on their feet. Think carefully about signing any document that could cost you a very high interest rate as well as the possibility of the loss of your only means of transportation.


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