Are car title loans risky? The short answer is yes, but all loans have some elements of risk. There are risks for both the lender and the borrower. Whether or not a car title loan is too risky is best left up to the opinions of those involved. Here is a look at some of the risks involved in taking out a car title loan.
- Risk of default. With any loan, lenders take a risk that the money they have loaned will not be repaid. It doesn’t matter if the loan was for $20 or for $200,000. The borrower may never repay it. In the case of a car title loan, a lender like Embassy Loans, which is one of Florida’s leading consumer finance companies, has the right to take possession of the borrower’s vehicle. The lender can then sell the vehicle in an attempt to recoup its losses. Typically, the rate of default on auto title loans is around 15 percent, which is roughly the default rate on payday loans and loans from a pawn shop.
- Risk of damaged credit. A borrower that chooses not to repay a car title loan for whatever reason will see his or her credit history suffer. Paying your bills and paying them on time is one of the biggest factors when it comes to calculating a credit score. Failure to pay off a loan will do damage to one’s credit history and will have an effect on future credit decisions and even future employment.
- Risk of repossession. A borrower that chooses not to repay a car title loan also runs the risk of losing the vehicle. If a borrower goes into default, the lender can take possession of the vehicle. This is part of every car title loan agreement. One of the great things about vehicle title loans is that the borrower continues to get to use the car or truck while the loan is being repaid. When the borrower defaults, the vehicle can be repossessed. While repossession is a risk, it typically only occurs in roughly five percent of all car title loans.
There are elements of risk in every loan; it is inherent when money is being lent. Lenders face the risk of not being repaid their money. Borrowers face the risk of losing their property and damaging their credit histories. While there is some risk involved, most car title loans go off without a snag. Defaults occur in less than one in five loans and repossession is even less common.