One of the most disturbing ads I’ve seen on my television lately was a car title loan company encouraging people to get the cash they need for Christmas presents. Since it’s “just” a title loan, they’ll get to keep the car. Great deal right? Wrong.
If you can’t pay them off, you lose the car. Your kids will be much sadder if you don’t have a car in the new year than if they don’t get a Christmas gift. And if you can’t afford the presents now and don’t have good enough credit to use something safer like a credit card, then odds are good you’ll have trouble paying it back.
The problem with title loans is that they’re what’s called “secured loans.” The ads make it sound as if there’s no risk attached–you get to keep your car, right? What they don’t add is that you get to keep your car for now. A secured loan is like a regular car loan or a mortgage or any loan which you took out using an item as collateral.
If you don’t pay a mortgage, the bank can foreclose on your house and take it away. If you don’t pay for the stereo you bought on installments, whoever owns the loan can take away your stereo. If you don’t pay for your car, the bank can take it as well. The thing about transferring your car’s title is that you’re transferring ownership. Sure, you still can drive your car, but they own it until you pay back every cent. Not only that, but if you get $4000 in a loan, you can pay over 100% APR interest on it (legally). Depending on how long it takes for you to pay it back, the loan could cost thousands more than you got. And since they have your title, the have the absolute legal right to take it away if you stop paying.
In most places in the States–less so in DC, but even here–your car is critical to performing most of your daily tasks, often including going to work. It’s about as dangerous as taking out a mortgage you can’t pay or a HELOC that you can’t pay, which allows the bank to foreclose on your house. Taking out a loan with your car as collateral puts your job and your family’s future at risk.
It’s not worth taking on that kind of risk, especially not for something like Christmas presents–or really for anything short of major emergencies (and even then, there are other kinds of loans which don’t put your means of transportation at risk, like credit cards or even, as bad as they are, payday loans).
Pass by the title loan establishments and give your family security for Christmas.