Dangers of Auto Pawn Loans

If at all possible, avoid the dangers of auto pawn loans. Unlike other personal property you might carry to the pawn shop for a loan, losing your car due to the inability to repay your loan may have an incredible impact upon your life.

Pawning your auto, also known as a "title loan," can become a very dangerous situation for you. The dangers are many and include the fact that this type of loan carries incredibly high interest rates that, when you are in dire straits for emergency cash, you may overlook. If you do not create a viable plan for repaying this type loan, reconsider.

Losing your automobile may impact you in ways that can change your lifestyle drastically while also putting you and your family in harm's way. Unfortunately, if your problem is longer term, such as losing a job, the risks accompanying this type loan may be too much to bear.

Failure to repay the loan according to the terms will not only result in the loss of the vehicle but will destroy any credit status you had up to this point. If you default on this type of loan, future attempts to purchase a home or other large items will be put in jeopardy.

Other dangers inherent with this type loan include the "trapping" consequence that allows you to renew your loan immediately after paying it off, minus the financing charges. So, if paying off your $2,500 auto title loan leaves you with $1,900-you still have $2,500 to pay back next time and, unless you find funds elsewhere to make a payment, you will continue to renew the loan to keep your cash flow afloat. It's costing you $600 per month to stay in this trap and for many people there is little if any other choice. And, if this roll-over includes a rising interest rate, that $600 also increases each month. As time flies by, the gap between what was borrowed and what interest keeps topping the principal continues to grow.

Plus, by law, these types of lenders are allowed associated fees such as a late fee that can only help to worsen your financial woes. The late fees get piled on and these too are tagged with interest increasing your indebtedness.

Although borrowing against an asset like your car might provide you with a short-term amount of cash needed to meet an emergency, the amount a lender will approve will never match any car's market value. But after a few months of successive roll-overs, the amount of money you owe will soon surpass the worth of the car.