Car title loans are the newest type of quick loan on the market. They do not come from traditional lenders but lenders who offer other money services, such as check cashing and payday loans. As the name suggests, a car title loan uses your car’s title to secure the loan. If you do not pay the loan according to the terms, then the lender can repossess your vehicle.
NerdWallet explains there are a few issues with this type of loan besides the risk of losing your vehicle. Another huge problem is that they have the highest interest rates of any type of loan. Combine that with the fact that such loans rarely require qualifications to ensure you can afford to repay the loan, and it creates a perfect storm for a serious financial problem. Beyond these two main issues, these loans have some other negative aspects.
Do not help your credit
This type of loan will not help you build your credit. They do not report anything to credit agencies. They will not report that you make timely payments or pay off the debt, nor will they report if you do not pay. So, they will not help your credit, but they will not hurt it either.
Help create a bad cycle
A car title loan often leads to an unhealthy cycle of debt. You borrow the money for whatever reason and then have to figure out how to pay it back, which may lead to more borrowing. Since these loans have seriously high-interest rates, it is very difficult to pay them back. You have to keep borrowing more and more until you have outstanding payments that are too high for you to ever pay.
Getting into this type of cycle makes it difficult to overcome. Eventually, you may have such serious debt issues that you end up having to file for bankruptcy.