Part III: A Loan? At What Cost?

Yesterday we looked at 401(K) loans and how they can be both a blessing and a curse. Let's look today at car title loans. You have probably seen the commercials for these loans in which you bring in your car title for loan (yes, you have to actually own your car). The good news is that you can get some emergency cash (and, no, needing some money for the beer party does not constitute an emergency) relatively easily. The bad news is that if you default on the loan, you will no longer own that vehicle.

These loans are for a fraction of what your car is worth: typically, you can get cash for 55% of the value of the car. Say your car is worth $2,000. You could get a car title loan for $1,100. You get to keep the car and make regular payments on this loan. Of course, they can renew it for a fee, but the interest rates on these loans can often run as high as 300%.

300%!

That means for the $1,100 you got for your $2,000 car you paid the car title loan place $3,300. That is no bargain. These are loans that you should avoid at any cost, particularly if you are trying to eliminate your credit card debt any time soon.

Have a GREAT day!