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Car Title Loan Myths

Title Loan myths versus facts

Title loan myths are presented as facts in many articles on the internet today. There are a number of articles detailing car title loans with inconsistent information. In many cases this includes information that is simply not factual, outdated, or incomplete.

Many of these articles are published by large publishers, how they don’t have fact checkers read their articles before publishing is surprising. In this article, we’ll quickly touch on some of the more common misconceptions and myths about Title Loans and how they work. Topics include the time frame, the interest rate, repossession, and other topics.

Most articles about title loans focus on why you should stay away from them. Unfortunately, some title lenders have a bad reputation because of the actions of some of the lenders in the industry that charge very high rates and treat their customers poorly.

Many of the most common myths come from previous practices of these lenders. Today, much of the information provided about title loans and how they work may have been true a decade ago, but today are simply myths.

Title Loan Myth 1 – All Title Loans must be repaid in less than 30 days.

Title Loan myth 1 30 day repayment

Just about every article about why consumers should stay away from Title Loans, including one from a large publisher, states Title Loans must be repaid in 15-30 days. This is very misleading and is only true for the few states that still offer 30 day loans.

Typically, these are more difficult for the borrower to repay. As a result, some states took notice of the difficulty 30 day loans placed on borrowers and instituted Monthly Term Loans.

States like Illinois, Texas, Virginia, and others either allow or require loans with monthly payment installments. In states with installment loans, the principal balance is reduced with each monthly payment. This means these loans can be for a full year, very different than the stated “15 – 30 days”.

Title Loan Myth 2 – All Title Loans have an APR of 300% or More.

Again, just about every article about title loans mentions an APR of 300%. While this may be true for some lenders, it is definitely not for all. While there are still lenders that still charge 25% per month (300% APR), it is not difficult to find lenders with lower rates. Car title loans still have very high rates compared to other loans.

As an additional part of this myth, it says to borrow $1,000 with a Title Loan you will repay over $2,500. Again, this is simply not true for the many Title Loans. A 12 month loan with a 96% APR for $1,000 costs less than $600 in interest for a total of $1,600 to repay.

If the loan is paid in 1 month, it costs $80 in interest ($1,080 total). With one of the lowest rate title loans these costs are lower than most. Still, finding a title loan with less than 300% APR is very feasible.

Title Loan Myth 4 – The Title Lender would rather Repossess your Car

There is also a myth that the lender would rather repossess your car than have you make your payments. This one is simply a myth. The vast majority of title lenders would much rather you made your payments than repossess your car.

Lenders are in the business of making loans and collecting payments. Most would much rather you made your payments, even late payments, than have to repossess your car. Repossessions are a hassle and nobody benefits.

Conclusion – How to Find a Decent Lender

Title loans are a unique form of short term credit using your vehicle as equity. Just like any other industry there are some companies that take advantage of customers and treat them poorly. This does not mean all lenders operate this way, or even the majority of lenders.

We have a general rule to figure out if you are overpaying for a title loan. If the loan costs double or more to repay in 1 year, it is likely too much and you can probably find a better deal. For example, if a $1,000 12 month loan costs $2,000 or may to repay that is too high. Feel free to use our car title loan calculator to see interest charges for different rates.

Another way to find a decent lender is looking at minimum loan amounts and minimum loan terms. We published a post about why car title loans are short term solutions that shows how much the total loan cost increases with the term. If the lender is insisted on a high minimum with a long term, you may want to think twice. Finally, do some general research.