Have you seen a sign offering a car title loan—also known as a pink-slip loan, title pledge or title pawn? These loans are use your paid-off car as collateral, and you get a small, short-term loan with a high interest rate. You usually have to repay the loan in 15 or 30 days, and the annual percentage rate (APR) is often more than 100 percent. If you don’t pay back the loan, the company can repossess your car—and then you’re worse off than you were before. It’s a very expensive way to get money.
Before you decide to take out a car title loan, weigh some options.
- Can you get a small loan from your bank, credit union or a small loan company? Even a cash advance on a credit card might cost less than a car title loan.
- Shop for the offer with the lowest cost. Compare the APR and the finance charges, and borrow only what you can repay in time.
For additional information, click here.
Teaching Suggestions:
- Ask students how they can avoid costly loans like car title loans?
- Why car title loans are considered risky and undesirable?
Discussion Questions
- What can consumers do if car title lenders fail to disclose all the qualifying terms associated with obtaining a loan at its advertised rate?
- What can government agencies do to protect consumers in the short-term lending and auto marketplaces?
Melissa Hart
Focus on Personal Finance, 7e 