Car Title Loans Dangerous for Consumers

by Lionel Creech

Despite bad credit and a worrying economy, car dealerships are still in the business of selling you a car no matter what. Pressure to perform has driven the car industry in to a bargaining game that puts salesman and consumers in a tricky spot. Cash would be ideal for anyone yet more often than not auto loans are given in order to finance car purchases. Two types of simple auto loans exist. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer. Many dealerships will claim, “I own the bank” which is a red flag for consumers to get out. Car title loans have become a phenomenon that puts consumers at risk. By using the value of the car to back up their purchase, they can sign themselves in to a contract issuing crazy interest with an APR in the triple digits like 250% (as opposed to 25% for credit cards). In the past year, the economic woes have minimally affected the payment of auto loans. However 2009 brings worries to the table as unemployment rises, borrowing becomes more difficult, and car dealers become more ruthless. Title loans are not only for cars, they are also given in exchange for ‘pawning’ an asset of yours. One example of this process is a $2000 loan by Scott Oden (which ended up having 300% APR) in exchange for the title to his wife’s 2004 Ford Expedition valued at $13,000. After two missed payments, the creditor repossessed the car and sold it at $13,000 and he or she is legally entitled to keep the difference. Thousands of Americans face the same dilemma when it comes to financing their lives. Many adults are now facing times in their lives where they can’t afford cars, their houses, and even the money to pay their electric bills. It is not hard to believe that these title loans are only legal in 18 states and that consumers must be weary and vigilant when it comes to their consumer financing.

Sources:

1)

http://www.cnn.com/2008/LIVING/wayoflife/10/08/aa.car.title.loans/index.html?iref=newssearch

2)

http://www.ajc.com/services/content/printedition/2009/01/25/titlepawn0125.html

3)

http://seekingalpha.com/article/116835-s-p-expects-modest-downgrades-of-u-s-auto-loan-abs-in-2009