If you have begun feeling the weight and pressure amounting bills and debt, you may have considered taking out a title loan on your vehicle in order to obtain cash to pay your monthly bills or other types of financial obligations. However, title loans are just as devastating financially as payday loans, in terms of astronomically high-interest rates. Obtaining a title loan is often the first step in a downward spiral of even more substantial debt. Learn how to avoid title loans and how bankruptcy could instead give you the financial breathing room you need for a fresh start.
Understanding Title Loans
A title loan (sometimes called title pawn) is a way for a person to obtain quick cash in exchange for giving the title of their vehicle to a third party. Essentially, the owner of a car is giving away their right to ownership in exchange for quick cash. When this transaction occurs, the third party then has legal ownership of the vehicle. If the borrower does not repay the cash, along with substantial interest rates applied within a specific period of time, the vehicle becomes collateral for the loan. This means that the third-party can legally repossess the vehicle and sell the vehicle to obtain repayment for the cash loan.
Why Title Loans Never Resolve Financial Challenges
Many people struggling with debt look to title loans due to their alluring promises of quick cash. However, many title loans end up financially devastating those who make the decision to begin the never-ending cycle title loan payments. Daily interest rates on title loans can be 8-10%, and the daily interest rates can compound to reach astronomical levels. For example, if a person makes the decision to take $2,000 for a title loan, they would have to pay $500 a month simply to pay the interest. This means that after a year of payments the debtor will have paid nearly $6,000 for the title loan and still owe the original $2,000 to the title loan company.
How Bankruptcy can Help
If you are considering taking out a title loan, you are likely facing serious amounts of debt that you feel you cannot repay. Instead of getting into a more financially problematic situation with a title loan, perhaps you should consider how bankruptcy could help you instead. If you make the decision to file for Chapter 7 bankruptcy, many of your debts will be completely eliminated. If you make the decision to file for Chapter 13 bankruptcy, you will create a reorganization plan that extends the time you have to pay your lenders and creditors. Either of these options gives you a financial fresh start without the burden of compounding interest.
Let Us Help You Today
If you are considering a title loan or payday loan, consider how the attorneys at Lankford & Moore Law can help understand your legal options, and how bankruptcy can give you the financial fresh start you need.