Consumers complain, and rightfully so, about credit card interest rates that average 19% per year and go up from there. Those rates are certainly higher than those charged by banks, were personal loans can often be had at half of that rate, provided that your credit is good. On the other hand, credit card interest rates are bargains when compared to those charged by payday loan companies, where interest rates can often exceed 400% per year. Consumers usually take out such loans, which require repayment in two weeks time, only when they have no other lending options available to them, such as when their credit card balances are full. Four hundred percent per year sounds completely insane, until you consider that there is a form of lending that is potentially even more expensive – the car title loan.

Car title loans work much like payday loans and have similar terms. Payday loans are short-term loans, usually two weeks in duration. The borrower pays a fee, which amounts to interest, that can average between $15 and $30 per $100 borrowed. If the loan is repaid in two weeks, the loan is retired. If the loan is not repaid, the borrower can usually renew it for another two weeks by paying the fee a second time. This is known as rolling over the loan. These loans have no collateral required; proof of a bank account and steady employment is usually enough to secure the loan.

Car title loans differ from payday loans in that the loan is secured by the title to the borrowers car. The duration of the loan is typically 30 days rather than two weeks, but the loans often work the same way. At the end of the loan period, the borrower can either repay or roll over the loan for another month. The difference, and it is a big one, is that failure to repay a car title loan allows the lender to repossess the borrowers car! At that time, the lender may sell the car and keep they money that they are owed. Most states require the lender to return any extra funds, but some states actually permit the lender to keep all of the money.

One would think that by requiring collateral in the form of a car title, the lenders could offer loans at a more affordable rate than those offered by payday lenders. They probably can, but in practice, the interest rates are very similar, which makes a car title loan a very risky way to borrow money. Most people need their car to get to their job; if your car is gone, so is your opportunity to repay the loan or to buy another car.

Lawmakers in various states have been trying to crack down on the growing car title loan industry, but they often meet with resistance from industry lobbyists and Republican legislators who think that the free market should decide how lending businesses work. Unfortunately, the free market is not available to most car title borrowers, who only go to such lenders after they have exhausted all other borrowing avenues, such as banks, credit cards, and even payday loans.

The bottom line is this – No matter what the interest may be, putting up the title to your only means of transportation as collateral for a $500 loan is a bad idea.

Posted by admin | No Comments »

Posted by pooch | No Comments »

Your credit score could make or break you in 2008. With all the foreclosures and defaults on credit cards, banking guidelines are getting tough. During the “Real Estate Boom” just about anybody could get a loan. Mortgage companies were just giving money to anyone that came along. Someone pulled the wool over the eyes of Wall Street. I personally was doing loans that I knew would default, but if I had denied the loan, they would have went somewhere else. The guidelines where so liberal that anyone with a job could have got a mortgage. Even credit card banks were extending credit to high risk borrowers. Now our banking and lending institutions are in a major clean up transition. I have noticed that some of the new guidelines for lending this year are getting to the point where good credit will only be allowed to get loans. It’s amazing how Bankers swing from the left to the far right to make an adjustment when it comes to Credit Risk. Freddie Mac and Fannie Mae of course are in business to make money, so it’s really like a cycle. Underwriting guidelines will tighten up, and then they will loosen back up.

So the question is, how long will it take for Creditors to loosen up on credit risk guidelines? Believe it or not, the U.S. had the same foreclosure crisis in 1998. The only difference was there was less publicity because there were less public traded companies involved that went out of business. So Wall Street was not affected like it has been recently. During this time of banking institutions going out of business, the Feds have lowered rates dramatically. It’s a great time to buy a house if you have decent credit. So what if you don’t? Maybe you are unsure where you stand with your Credit. There has never been a better time to get on top of your Credit Report than now. It really stinks to rent, drive a junk car or get denied for credit when you really need it because of your Credit Score. I personally think 2008 is a time to step back look at your personal finance and please don’t try to keep up with the Jones, cause you are not going to take it with you. Just remember, good credit, good health and low debt is the path to prosperity in 2008. It really looks like Banking will tighten up over the next 3 years and the lending will never be the same again.

So if you want a piece of the American dream, please stay on top of your personal credit. Remember “Your Credit is your Life.”

Posted by admin | No Comments »