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Hi, everyone. Today’s post covers a topic that I really wish I didn’t have to cover, but these products are out there so I feel the need to address them. Here we go…

 

Car Title Loans 

 

Over the Christmas holiday period I saw numerous commercials offering a product that, quite frankly, makes me a little bit crazy.

“Short on Cash for Christmas Presents? Pawn your car title and get that cash!”

I can think of absolutely ZERO reasons why anyone should pawn their car to pay for gifts of any kind. The interest rate alone (as high as 25% per month!) plus additional fees make title pawn loans one of the most expensive money products out there. Still, it happens.

When I was researching this blog post all the articles I found said pretty much the same thing. This article from CNN is probably the most comprehensive one I found detailing how absolutely horrible these loans are.  High interest rates, high fees, and absolutely NO sympathy from the lender if you default on the loan. They’ll repossess your car without batting an eye, and some will even try to charge your for THAT, too. For the record, charging a repossession fee is illegal.

If you have a title pawn my advice to you is to pay it off as soon as humanly possible. The short term gain is not worth the long term risk of losing your vehicle if you can’t pay off the loan. Regardless of the amount, this type of loan goes to the TOP of any debt clearing priority list.

 

Payday Loans

 

The articles I found about Payday Loans tell a story very similar to those of Car Title Loans. You give the lender a check with the amount borrowed plus their fee, and they agree to hold the check until your next payday. More often than not the borrower needs to roll the loan over because they can’t pay it back, and a vicious cycle begins.

While you cannot be sent to jail for defaulting on a payday loan, that may not stop a collector from threatening to do so. If you are caught up in a Payday Loan mess, Nerd Wallet has some good advice for how to get out of it.

As with Car Title Loans, I can think of absolutely NO reason why anyone should want to borrow money this way. The mess it makes is not worth a few hundred bucks, so steer clear at all cost.

 

Alternatives to Title Pawn/Payday Loans

 

Years ago I worked in a credit union that was housed in a manufacturing facility. Membership was open to all employees and their families. Many of our members lived paycheck to paycheck and would sometimes need a little extra cash to get them to their next payday. To members who qualified, we offered short term no collateral loans. The interest rate was high (19% APR, as I recall) but not nearly as high as you would pay for a title pawn or a payday lender. If you are a credit union member, this is worth a look. If you’re not a credit union member, it’s worth looking for one to join. 

In my post from a few weeks ago I offered some advice on accepting help when you are in a financial crisis. Any of these charitable resources would be a MUCH better alternative than getting involved with a title pawn or payday lender. If you find yourself in a crisis situation, please look here before borrowing money from someone who has no true interest in helping you.

Be well and God Bless-until we meet again…

Note-Any and all items contained in the Older Wiser Money Miser Debt Free Challenge are intended as a resource for informational purposes only and should not be construed as professional tax or investing advice.

Sources

Consumer.ftc.gov

Nerdwallet.com

Consumer Finance Protection Bureau

Clark.com

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