Why Are Title Loans Considered Controversial Short Term Lending Options


The Title Loans Option

Often times people are hard up for some cash. This may be due to losing a job or being forced to deal with an emergency medical situation. Regardless of the reasoning behind the need for quick cash, title loans are always an option, albeit a very risky one.

Trapping Borrowers Into Perpetual Debt

The main reason that title loans are considered to be quite controversial is that they impose extremely high interest rates upon their borrowers. Often times the interest rate is so high that that only way the borrower can pay off the loan is if they over pay on payments or pay it off in one lump sum. Without overpaying on a high interest title loan you will get stuck in a vicious cycle of only paying off the balance interest every month and never actually putting a dent into the principle itself.

Short Term Title Loans And Auto Repossession

Often times the end result of a high interest short term title loan is the repossession of the vehicle that is being used to secure the loan. With the interest rates being so high and there being little chance of paying down the principle unless you overpay, defaulting on the loan then becomes a major risk. This is especially the case when short term title loans are made available to lower income individuals. With little to no disposable income available to double up on payments the default risk in some cases can be 60% or higher.

Reputable Lenders Will Not Offer Title Loans

Generally, reputable banks and lenders will not offer high interest short term title loans due to the controversial and often shady reputation that these loans entail. Large lending institutions are also subject to far greater third party oversight and regulation and thus there is no way that they could fly under the radar with such predatory lending practices.

Bad Intentions

Often times small and shady lenders will deliberately structure short term title loans in a manner that almost forces the borrower into default at some point. For example, some short term title loans will require the loan to be paid back in full over a short period of time. If the borrower is not able to pay back the loan within the given time then they forfeit the title of their vehicle and it then will be taken by the lender.

Short term title lenders will usually only lend out a small amount of money compared to the amount of liquidable equity at stake in the automobile that they hold the title to. In the event that a borrow defaults on the loan the lender stands to reap profits that far exceed the amount that they initially loaned out.