Interesting Point: Auto title loans

Toy car on coins

Auto title loans are a high-cost way to borrow small amounts of money for a short period of time, using your paid-off car as collateral.

Here's how it works:

You go to an auto title-lending company with the title to your car in hand. The fair market value of your car is determined and you can borrow a percentage of that amount (it varies by state).

The interest rate on a 30-day loan is usually 25%, which adds up to 300% a year.

Say you borrow $600. You would pay $150 in interest the first month, so now you owe $750.

If you can't repay the $750 within 30 days, the lender will roll your loan over for another 30 days and add another 25% in interest charges making your new balance $937.

A lender can roll your loan over six times.

If you haven't paid the loan back in full at the end of six months, your car will be repossessed and sold as repayment for the loan.

A car title loan is actually more dangerous than a payday loan simply because your car is at stake. If it's seized, you lose a valuable asset. You also lose your transportation to work, school and the grocery store.

This is the worst kind of short-term loan. Don't even consider one.

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