Auto “Title” loans can cost you your car

Like “payday” loans, in which you borrow against your next paycheck, car “title” loans, in which you borrow money against you car’s title, can get you into a never ending downward spiral.  In this case you can end up losing your car.

The Wall Street Journal reported on one example, a 31-year-old barber in Virginia who borrowed $1,500 in 2008 to help pay his rent.   He secured it with the title to his 2000 GMC Yukon.  The interest rate was so high that after making FIVE monthly payments of $600 ($3,000 total) he had not even made a dent in the principal!  He ended up having his car repossessed, and in the end it cost him $8,000 more dollars to get it back.  All that on a $1,500 loan!

These loans are so punishing — with interest rates that can exceed 300% — that many states are now restricting them, or even outlawing them.  They will become illegal in Wisconsin this year, and at least seven other states have put restrictions on them.

We have often complained about credit card interest rates, which can go up to 36% or more in some cases, but these title loan interest rates make credit card interest look almost reasonable!  And credit cards are unsecured loans.  These loans are secured by your car.

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