Car title loans can be a quick cash option when you own a vehicle outright. This particularly is particularly true if you’re careful to ensure you’re avoiding title loan pitfalls. Taking your time and shopping carefully will help you find title loans in Texas and other states that suit your borrowing needs.
Pitfall One: Lack of Knowledge
It’s surprising how many people take out loans without knowing the full scope of what they’re doing. A title loan is a short-term collateral loan that functions similarly to a pawnshop loan. However, instead of leaving the car, you agree to sign over the title to the car if you cannot meet the terms of the loan agreement.
In effect, you’re giving he lender a lien against the title to your car. In the vent you default, they can force the sale of the car to recoup their monies. You’ll usually get the difference back, assuming the car is worth considerably more than you borrowed.
Of course, you can avoid this altogether by paying the loan back within the specified timeframe. You do have the option to extend the loan if the due date comes and you don’t have the cash. However, that’s when this type of loan starts getting expensive by rolling over the fees and compounding interest payments.
Pitfall Two: Overestimating Your Ability to Repay
While optimism is certainly a good thing in most aspects of life, this is one time when you absolutely need to be a realist. Get this part wrong, and you’ll stand a very real chance of losing your car. Look over your budget carefully. Take any potentially unforeseen circumstances into consideration.
Understand explicitly how you got into this position in the first place and take steps to ensure you do not find yourself facing the same problem again. Time your payments so they land on your paydays, rather than in between your pay periods. You want to have the money in hand when the payment comes due.
Being honest with yourself about the gravity of your situation will help you come put of a car title loan ahead, rather than owing way more than you did before you took the loan.
Pitfall Three: Not Understanding Interest Rates and Fees
Some states don’t have a limit on the interest rates a car title lender can charge you. Texas residents are a little better off with a maximum 10% interest rate. However, loan fees can get high as a way for Texas lenders to maximize profit. Always remember you need them more than they need you because you don’t have money, and they do. Avoid predatory loan practices that promise big things but don’t show you the fine print.
Closing Thoughts
The financial industry is undergoing a digital transformation of brick-and-mortar banks into online banks. Getting title loans in Texas means you need to understand the basics of the deal like what lenders can legally charge for a loan of this type.
The key to avoiding title loan pitfalls is the same as avoiding the pitfalls of any other financial transaction. Knowledge is your best friend. Always take the time to read loan agreements carefully. If you don’t understand what you’re reading, ask someone who is more adept with contracts of this nature.
Know clearly what’s expected of you and be certain you can fulfill those requirements, before you sign anything. Conducting your due diligence will help to ensure the loan you get helps you better your situation than worsen it.
