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Personal Finance Disaster: Car Title Loans

May 26, 2016 by admin Leave a Comment

How to lose your transportation the auto title loan way.

You own your car outright and have possession of the title. At the same time you’re pinched financially and could use some cash. You’ve heard about car title loans and find yourself lured by promises of quick cash.

What could go wrong here? A little emergency money can tide you over, giving you the opportunity to handle other pressing financial matters.

Seized Vehicles and Other Matters

Unfortunately, car title loans — also known as auto title loans — are not the solution to a financial problem. In fact, the Consumer Financial Protection Bureau (CFPB) found that one-in-five auto title loan borrowers have their vehicle seized. And without wheels, you may find yourself facing worse problems — no way to get around, including to your job.

On the surface, a car title loan may not sound like a big deal as it provides you with a small amount of money for a short period of time, usually 30 days. In exchange for cash, you hand over the title of the car to the lender and pay a fee for the loan. Loan rates are extremely high — as much as 300 percent annually or 25 percent for the month. Thus, if you borrow $1,000 you may need to pay back $1,250 in one month.

“Our study delivers clear evidence of the dangers auto title loans pose for consumers,” said CFPB Director Richard Cordray. “Instead of repaying their loan with a single payment when it is due, most borrowers wind up mired in debt for most of the year. The collateral damage can be especially severe for borrowers who have their car or truck seized, costing them ready access to their job or the doctor’s office.”

Reborrowed Loans and a Debt Pit

Besides the high rate of repossessions, there are other problems the CFPB found with such loans:

1. More than four-in-five auto title loans are reborrowed on the very day they are due. That’s because borrowers cannot afford to pay them off with a single payment.

2. Auto title loans become long-term debt. Because borrowers experience difficulty paying off their loans, the CFPB found that more than half of auto title loans become long-term debt burdens. In this case, borrowers take out four or more consecutive loans in an effort to pay off their debt and avoid repossession. Besides the outstanding loan amount, borrowers are hit with additional fees, worsening their debt.

3. The borrowing doesn’t stop. More than two-thirds of car title loans are obtained by consumers who take out at least seven consecutive loans and remain in debt for the better part of the year.

Small Loans, Big Burdens

The CFPB report examined approximately 3.5 millon, single-payment car title loan records from 2010 to 2013. The bureau focused only on non-bank lenders; consumer’s personal details were redacted.

The average amount borrowed for such loan is $700 and the typical interest rate charged is 300 percent annualized. Such loans are allowed in only 25 states — 20 of the states permit lenders to collect a single, full payment at the end of the loan term. Five other states require installment payments.

The CFPB study noted that car title loans and payday loans are similar as both charge exorbitant interest rates and include high incidences of reborrowing. In effect, consumers are ensnared in a long-term debt trap, and are at great risk of losing their cars.

Explore Other Options

So, how do you avoid the car title loan trap? By not agreeing to one in the first place. If you are that pinched for money, consider other sources — just don’t put your ride in jeopardy. Can you afford to do without a car? Probably not. Losing your car can change your life and in ways you may never imagine.

See Also — Car Repossession and How to Avoid It

Public domain photo supplied by Jelson25.

AutoPacific Forecasts Positive Auto Trends

February 23, 2015 by admin Leave a Comment

US auto sales continue to grow and have started the year off strong. Across the board, analysts have been predicting sustainable growth for the year, but few have dared to look much further out in the future. Now, AutoPacific has released its forecast for sales through 2020, what may surprise some people.

AutoPacific Forecasts Three More Years of Growth for U.S. Light Vehicle Sales

Ever since the US auto industry plunged in 2009 to depths not observed in decades, experts in recent months have been noting that the current recovery — now in its sixth year — is an unusually lengthy one. Yet, few people are looking beyond 2015, with most simply content to state that sales will continue to rise this year.

AutoPacific Inc., an automotive marketing research and product-consulting firm, has bravely looked beyond this year in a bid to forecast annual sales for the intervening five years. AutoPacific expects sales to approximate 17 million units this year and continue to ascend for two more years, peaking at 17.24 million units in 2017.

Best Market in a Decade

For 2015, AutoPacific expects sales to escalate by 524,000 units over 2014, coming in just under 17 million units. If the company is precise in its assessment, then the market would reach a threshold last attained in 2006.

“U.S. sales recovery has been steady since hitting the bottom of the decline in 2009, though recent years have seen things taper off from 11% growth in 2010 to 6% in 2014, and a forecasted 3% growth this year,” says Ed Kim, Vice President of Industry Analysis at AutoPacific. Furthermore, AutoPacific’s forecast for the year sees a 55 percent truck to 45 percent car allocation as consumers continue to embrace crossover utility vehicles, especially compact models. That apportionment would represent the largest truck share of the market ever seen.

AutoPacific Forecast Through 2020

With 2017 forecast as the peak sales year for the decade, AutoPacific has not envisioned that a major market correction is in the offing. Instead, the company has forecast a slight contraction beginning in 2018 and continuing through 2020.

The logic given for that downswing is based on two factors:

1) a probable rise in interest rates in the next few years and,
2) young buyers, also known as Millennials, waiting longer to purchase their first new car.

An overarching reason might also be weighted and that would involve loan terms. Notably, we are currently seeing loans for 72 months to as long as 96 months offered by some financial institutions, including the Navy Federal Credit Union. Indeed, the interest rate on 8-year auto loans underwritten by the NFCU presently stands at just 4.49 percent, although they are offered only to people with superior credit.

The Effect of Rising Interest Rates on Loan Terms

Once interest rates begin to ascend, then monthly payments will also begin to rise. Likewise, lenders may pull back and offer shorter term loans only, effectively shutting some consumers out of the new car market.

Speaking of loans, AutoPacific says that the average loan length today is 66 months (5.5 years) compared to 48 months (4 years) just a few years ago. Declared Kim about today’s loans, “Vehicle buyers will be in a negative equity position on their loans a lot longer than in the past, and that will have a profound impact on replacement demand in the future.”

Forecast Accuracy, Consumer Data and Purchase Intentions

AutoPacific’s forecast accuracy over the past 10 years has been 95.5 percent, with 2008 and 2009 coming in below 90 percent as most analysts underestimated the breadth and depth of the last recession. The company relies on consumer supplied data and economic forecasts to aid it with its own forecasting. Moreover, the company indicated that intelligence also helps analysts “…better understand vehicle buyer purchase intentions, including brand consideration and future segment intention.”

Chart supplied by AutoPacific.

Money Saving Strategies for Auto Loan Shopping

September 18, 2013 by admin 1 Comment

If you are shopping for a new car, more than likely you will take out an auto loan. Such loans are common to 90 percent of new car buyers, individuals that do not have enough cash on hand to afford a purchase. Auto loan rates vary and can cost you hundreds of extra dollars if you jump in without thinking. Employ several money saving strategies when shopping for an auto loan.

Don’t break the bank to buy your next car.

Shop for a Loan

Loan rates vary and one lender may offer a half-percent lower than the next. You won’t know this unless you compare offers from at least three lenders. Better yet, consider five or six lenders including your own bank or credit union.

Know that loan rates change based on the length of the loan. For instance, a 48-month auto loan will typically have a lower rate than a 60-month loan. At 72 months, your rate will be higher. Go with the shortest term loan you can manage.

Put More Money Down

Lenders want borrowers to have skin in the game. Although it is possible to swing a “no money down” loan, you will pay for it with a higher interest rate.

When you have money to put down, including much more than the customary five to 20 percent down, then you can ask for a lower interest rate. If you do not get it from one lender, then go on to the next.

Fix Your Credit

Know that advertised auto loan rates are for customers with excellent credit. That means you need to have a credit score of at least 720 to 750 to get the best rate. Lower credit scores mean a higher interest rate.

If your credit is low, especially if it is in subprime territory, then your interest rate will reflect your bad credit. At this point, you night want to put off applying for a loan until your credit improves. Pay your bills on time, clean up your credit reports and avoid opening up new accounts until after you receive your auto loan.

Rebate Versus Loan Rate

So, should you take the generous rebate or should you go with the low-rate dealer financing? That’s both a question and a dilemma customers face and often do not know how to resolve. You can figure out what option is best for you by inputting your information on the Bankrate.com finance calculator.

The best deal for you may be to go with your own financing company and keep the rebate. That rebate or cash back offer can be used toward your down payment, supplementing the contribution you planned to make. For instance, if you planned to put $3,000 down and the rebate is for $2,000, then you only need to finance $20,000 for your $25,000 new car purchase.

Avoid the Extras

When you are preparing to sign your auto loan contract, pay special attention to the fees charged. Everything should be put in writing and fees should not be added after the fact.

Some of the fees you can expect to pay are destination, property tax and your state sales tax. What you may also discover are special dealer prep, department of motor vehicle license delivery and undercoating charges. Such “junk” fees should be eliminated before you sign your sales purchase agreement.

Related Reading — What Your Dealer Won’t Tell You About Car Financing