Q:

What are some pitfalls of auto title loans?

A:

Quick Answer

Auto title loan lenders often charge triple-digit interest, use hidden fees to increase the consumer's debt, and offer loan amounts that are significantly less than the value of the vehicle, explains Bankrate. The lenders do not consider the loan applicant's ability to pay back the loan,

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What are some pitfalls of auto title loans?
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Full Answer

Car title loans often include numerous fees, such as processing, document, lien and origination fees, in addition to high interest rates, notes CNN. In addition to these fees, borrowers may have to pay high late fees. Repossession fees are illegal, but some lenders still charge them. Other lenders require that borrowers buy roadside assistance for the length of their loans for an additional fee.

Most auto title loans require payment in full after 30 days, but lenders may also allow borrowers to roll-over their loans by taking out new loans to pay the old loans, explains CNN. This increases the overall debt burden for borrowers. Other lenders may offer interest-only payments with balloon payments on the end of a longer-term loan, which also increases the chance that the borrower cannot pay the loan in full.

Although auto title loan lenders often disclose their rates as a monthly annual percentage rate, federal law requires them to also disclose the annual percentage rate, according to CNN. For example, a lender could advertise a 25 percent monthly annual percentage rate, which is also a 300 percent annual percentage rate.

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