When it is a car title loan. With a 300 percent interest rate. This type of loan has the potential of driving your car into repossession and your financial situation into bankruptcy. They operate in a manner very similar to payday loans, a while banned in some states, they are available in Kentucky.
They appear attractive on their face. You obtain a loan, often without a credit check, for a portion of the value of your car. The car title loan company places a lien on your vehicle, and when you pay the loan off, they release the lien. In practice, far too many customers are unable to pay the loan off in the one-month period that is customary, and they roll it over.
According to a story from the AARP, the average loan is $951 and the borrower ends up renewing the loan eight times. For their $951, they paid an average of $2,142, thanks to the annual interest rate of 300 percent.
The article notes a loan should only be taken when you know you can repay. No matter how badly you believe you need money, this type of loan is never a good idea, and if you are paying twice the amount you borrow in interest, your overall finances are likely to suffer, sometimes irreversible damage.
Before you place yourself in such an unenviable position, you may want to consult with a bankruptcy attorney. They may be abet to help you sort out your finances in such a way that avoids outrageous interest charges and may enable you to place your finances on a stable foundation.
Source: AARP.org, “Car Title Loans May Wreck Your Finances,” Lynnette Khalfani-Cox, January 17, 2014