Subprime loans are tailor-made for consumers who have a low credit score and do not have access to conventional, low-interest debt instruments. Borrowers who are in need of emergency cash and can’t get a loan because of a bad credit can overcome this obstacle by applying for subprime loans, such as auto title loans.
Consumer advocate groups recommend you fully understand the terms of the agreement before taking on any subprime financing product. Because most likely you’ll have to pay higher interest rates and more financing fees than if you choose conventional financing products. The increased rates are necessary because of the risk of lending to borrowers with bad credit is much higher.
Auto equity lenders have to back up their loan. They often have higher interest rates and but the loan is really secured by the borrowers automobile title. The lender will hold the borrowers title as collateral. That way if the borrower is unable to repay the debt, the lender can recover their losses, by repossessing the vehicle and selling it.
This is why most auto equity loan lenders, will only give you up to 50 percent of the vehicles value, that way they can sell the car, to recover the losses from the unpaid debt. Repossession is the ultimate penalty. But most lenders will attempt to contact you and collect the payment before it goes as far as repossession because most often it can cost the lender a lot more to repossess and sell the vehicle than the actual cost of the original loan.
If you are thinking about applying for auto title loans, some state laws, like those in Oregon, make it illegal for the lenders to take a duplicate set of keys. But in cases when the lender has to repossess the vehicle and does not have keys, the lender can get a new set of keys cut using the key code found on the title slip that you proved when you applied for the loan. Some lenders will even require you install a GPS system so they can find the vehicle in case they need to repossess it.
Consumer credit groups suggest you need to know what you will be responsible for up front so you can plan your repayments accordingly. For your own protection, you should always read the legal disclosures section of a lending agreement. This is the section that outlines all fees and charges that may be levied against you, as well as the interest rate, expressed as an annual percentage rate or APR.
The fees outlined in your agreement may vary depending on the lender you choose, but there are some common fees for auto title loans. Oregon, New Mexico, California, and Arizona lenders usually include these terms:
* Insurance: Some lenders will require you to pay a one-time fee for collision insurance.
* Repossession fees: Should you default on your payments and force the lenders to repossess your car, they may charge you a repossession fee. In order to get the car back, you must pay this fee.
* Collection fees: If you make a late payment, some lenders will charge you for the cost they incur from sending you a notice of the late payment or dispatching a representative to collect in person.
* Late fee: This is calculated as a percentage of the monthly payment.
Once you have an idea of the fees in the agreement, ask questions and, if necessary, consult a lawyer to comprehend what you will be getting yourself into. Understand what you will be required to pay and when. Also make sure that you have the right to take legal action, should that be necessary.
Understand your rights as a consumer, including your right to negotiate the interest rates you will be paying the lender. Do a little research and go through the agreement with a fine tooth comb to understand all the implications of your debt before you sign on the dotted line.