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Car title loans carry high interest and threat of repossession

From time-to-time, many Alabamans find themselves in a financial crunch. They may have bills coming due and need quick cash to hold them over to their next paycheck. When this happens, many of these individuals turn to car title loans. These loans are supposed to be short term loans which are fast and easy to obtain. But Alabama residents should be aware of the serious risks involved with taking out one of these loans.

Car title loans have many negative aspects. First, these loans are often small, but use a borrower's car as collateral. In fact, the Center for Responsible Lending and the Consumer Federation of America released a report that found typical car title loan borrowers received only 26% of the value of their car. Second, these loans often carry triple-digit interest, typically 300%. These high interest rates lead to an average repayment of $2,142 on a $951 loan. Additionally, these high interest rates lead to loan renewals, creating a vicious cycle of longer repayment and thus increased repayment amounts. Lastly, failure to pay a car title loan can lead to repossession.

Individuals who seek these loans are often facing serious financial challenges which may include unemployment or a medical condition. As a result, an individual's vehicle may be his only remaining asset. When a missed payment leads to the threat of car repossession, the borrower should seek an attorney's help in weighing his legal options.

An individual whose Income is low or is insufficient to cover his bills, the individual may find himself in an overwhelming spiral of debt. If this is the case, an attorney may suggest filing for bankruptcy. Bankruptcy may sound scary, but it might allow a temporary stay to be placed on vehicle repossession. This might allow the borrower an opportunity to make other arrangements for transportation in the event that the vehicle is taken later. Chapter 7 bankruptcy may allow the individual to liquidate his debt so that he can obtain the second chance he deserves.

Experts suggest borrowers avoid car title loans and instead seek personal loans from friends, family, church and community groups, or employers. This is good advice, but it may be too late for some, and for others there may be no other option. If that is the case, and the borrower finds himself unable to cope with his debt, whether from an car title loan or an auto loan, he should seek help from an experienced Alabama bankruptcy attorney.

Source: Fox Business, "The Consumer Perils of a Car Title Loan," Autumn Caliero Giusti, Oct. 30, 2013

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