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Car title loans: useful tool or recipe for disaster?

No reasonable person in Florida or elsewhere in the country would call the lending industry uncreative.

Indeed, there are seemingly hundreds of lending products available to the American consumer -- read debtor -- who is in need of a bit of cash. Those centrally include things like standard bank loans, home equity loans, checks written on credit cards, various lines of credits and additional options.

At the extreme, they include payday loans and a popular though lesser used lending vehicle called a car title loan. These lending options are typically less exacting than more mainstream lending tools, enabling borrowers seeking debt relief to get cash in their hands quickly without much of a vetting process.

That often means no credit check or a lender’s demand to see bank statements or sources of income.

In exchange for such relaxed requirements, it also means lofty interest rates that are sometimes so high that they exceed a loan’s principal amount by many multiples.

An official with one nonprofit group that advocates for lower-income persons says that turning to such loans is “absolutely the wrong way to deal with a short-term financial problem.”

A recent media article that focuses on car title lending explains quite clearly why the decision of a borrower to allow a company to place a lien on his or her car in exchange for money to cover a short-term debt is highly inadvisable in many instances.

The bottom line: Although all is well if you pay back the loan quickly, intervening circumstances that make that impossible will result in either the loss of your car or a loan rollover that brings an even higher interest rate.

And that outcome renders the debt relief that a borrower initially sought illusory.

The organization Center for Responsible Lending states that car title lending results in borrowers paying about $3.6 billion in interest annually on just $1.6 billion of borrowed principal.

Source: AARP News, "Car title loans may wreck your finances," Lynette Khalfani-Cox, Jan. 17, 2014

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