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High-interest title lending may cause more debt than it erases

When people receive bills in the mail, most people automatically pay them. Unfortunately, not everyone in Rockingham County can always afford their bills, yet they can't just not pay them. So, many people in New Hampshire turn to short-term lenders who can provide easy access to money. Although a car title loan may seem like a good idea when a bill needs to be paid, it can actually cause more debt than it helps to erase.

The problem is that car title loan companies have very short repayment periods and triple-digit interest rates. The way they are set up, lenders really just want borrowers to pay interest, which provides the lender with a steady stream of income.

To get a car title loan, an individual must show that he or she owns a car, using the car's title as collatoral. The borrower than receives a portion of the car's value and is told to pay the loan back in a month. If he or she cannot, however, the borrower will have to carry the loan over to the next month, which means he or she will be paying interest and, often, fees. If the loan is neither paid off, nor rolled over, the lender can take the borrower's car.

Yes, car title loans provide easy access to money, but they also come with great risk of increased debt. It makes little sense to pay back $3,000 or $4,000 for only a $1,000 loan. After all, some creditors are willing to give an individual more time to pay a bill if he or she just asks.

Source: AARP, "Car Title Loans May Wreck Your Finances," Lynnette Khalfani-Cox, Jan. 17, 2014

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