Car title loans are notoriously known for targeting low income customers with the ulterior motive behind the loans being to their vehicle away. As true as some would say this is, the whole idea sounds a bit exaggerated. People who fall into the desperate need for quick cash tend to be those who are considered low income, but not always. If their credit is poor and income does not support their expenses, then a car title loan is an option available for those who own the title to their car.
Is the car title company targeting these customers in order to sabotage their finances or are they offering one other option to help. High interest rates for a short term loan offsets the risk involved in lending money to those with poor credit. These loans work well for responsible borrowers. Someone who uses their investment to help themselves out of a financial jam knowing that the payoff is just around the corner and there is a payoff strategy in place. The lender does not hold the vehicle, but allows the borrower to keep possession of it. There is risk involved with that action. What happens if the car gets damaged during the term of the loan? What happens if the car gets stolen? There are risks involved with lending money to someone with bad credit history and little income. There are additional hassles and multiple costs to repossessing a car which doesn't support the idea that the vehicle is the targeted prize the ultimate goal.
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You know that saying, "It takes two to tango"? It takes both lender and borrower to be responsible. If a person needs money that bad and owns their car, they have more than the car title loan option. They could sell the car outright and probably get more money through that transaction. A responsible loaner will only lend a percentage of the fair market value. The lender is not targeting the vehicle, but giving the customer the chance to use the equity in the car without losing it. High risk transactions bring high interest rates and demand a quick payoff.
What would a bank do? If your credit allows you to get a title loan from a bank, it will still be used as collateral; the interest rate for a short-term loan will still be higher than standard loans. If you default on your loan, your car will become property of the bank. Do the banks target the vehicle? Lenders target the revenue collected from the interest on the loan. Higher risks always cost more.
How does one be a responsible borrower? For starters, don't apply for a loan that you know you cannot pay back. Secondly, shop around for the best lender in your area. Pay attention to the charges involved and know what interest rates you will be charged. Don't borrow more than what your emergency demands. Stay clear from predatory lenders who pressure you to sign without explaining the costs. Don't sign a contract which contains forced arbitration clauses. These will take away your right to pursue legal action if you have a dispute with their services. Lastly, do what you can to fix your financial situation to keep yourself out of any future financial emergencies.
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