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What is a title loan and how does it work? | Personal finance

This is where securities lending can become a headache. If you don’t pay off your loan on time, you can lose your car because it serves as collateral. So if you choose to take out a title loan, make sure you pay on time so you don’t risk losing your asset.

How much can you borrow with a title loan

Your loan limit is between 25% and 50% of the total car value, and the lender will examine your car to determine its value. Some loans are as low as $ 100, while others exceed $ 10,000 or more.

When Should You Get a Title Loan?

According to the Consumer Financial Protection Bureau (CFPB), 20% of car title loan borrowers have their car seized when they cannot pay off their loan in full. Car title loan lenders derive the majority of their business from borrowers who continually take out new loans to cover their old ones. More than half of auto loans become long-term debt, and more than four in five auto loans are re-borrowed because borrowers cannot pay them off in full in one installment.

For this reason, you should research alternative financing methods before taking out a title loan. Alternative payday loans from credit unions, personal loans from online lenders, credit cards, and even borrowing money from friends and family are all better options than the potential loss of your vehicle.