Nearly anyone who listens to the radio or watches television has seen those cash advance commercials with some guy exclaiming, “Do you have bad credit or no credit? No problem!” or “I own the bank! Credit is not an issue!” However, anytime somebody tells you that he or she “owns the bank,” run away. Fast.

Although these types of lenders have existed for some time, choosing to sign your car title over in return for a high-interest loan may turn into a serious financial issue. If you are unfamiliar with cash advances for car title loans, here is how it works: When you are strapped for cash and have poor credit or no credit at all, you are limited in the ways in which you can obtain a small loan from a bank or other financial institution. 

A car title loan provides you with cash from the lender; in return, you sign over the title of your car (as long as it has been paid off) in order to secure the loan. In most cases, these loans are due in full one month later. The lenders do not typically check your credit, and you are only obligated to provide minimal income verification. While the process sounds straightforward, hasty borrowing could lead to repossession of your car and other financial struggles.

High Interest Rates

Many consumers have lumped these institutions into the “predatory lending” category. One of the biggest issues borrowers face are the astronomical interest rates. Many people shy away from high interest rates for credit cards, which average between 15 to 18 percent for most Americans. However, car title loans make complaining about these rates seem foolish.

Car title lenders are not categorized like credit card companies or banks; they are able to charge triple digital annual percentage rates (APRs) to their customers. While a 250% APR may seem like an exaggeration, such is not the case, unfortunately. You may now be glancing at your 25% APR for your credit card and sighing a breath of relief.

However, by federal law, car title lending institutions are required to disclose these interest rates before you proceed. If you decide to follow through, make sure they give you the APR percentage rate, not a quote of the monthly percentage rate. If they are unclear, remember that 25% is equal to a 300% APR.

Interest-Only Payments and Fees

Not only do these lenders charge high interest fees but they also stick you with other fees that add up quickly including lien fees, origination fees, late fees, document fees and processing fees. You may be entitled to purchase a roadside assistance program for another small fee; some companies make these programs mandatory. It is not unheard of to have these fees range anywhere from $80 to $115, even for a $600 loan.

Most of these fees are legal except for one: The repossession fee. Lenders are not legally allowed to charge you money to repossess your vehicle although some may try. As if these high fees weren’t enough, lenders may also give you the option to set up interest-only payments for a specified period of time. In this case, the loan is dragged out over a longer timeframe, and you can choose to pay only the interest on the loan or what is known as a “balloon payment.”

Repossession and Rolling Over

While you may believe that those who take out these loans always pay them back before the 30-day limit runs out, such is not the case. Because of the high interest rate and the fact that these lenders prey on low-income borrowers, most people are not able to pay back their loans within the specified time period. This is known as “rolling over” the loan.

The terms of car title loans are set to keep borrowers in a vicious cycle of debt and bring them to the verge of repossession or physical repossession. Not being able to make payments and pay off the loan in full and continuing to renew the loan costs the borrower even more money in interest, on top of the original amount of the loan.

Some companies may check to see if your car key works and your car runs while you fill out the paperwork; others opt to place a GPS unit on your car that will shut off the vehicle if you miss a payment. Lenders take your signature very seriously and, if you can’t pay, they will come searching for you and your vehicle.

If your vehicle is repossessed, how will you go out on the weekends, pick up groceries, drop your children off at school or get to work? The ramifications of car repossession are serious. Owning a car may be your biggest financial asset; if you lose your car, there goes the money it was worth.

Depending on the state in which you live, there may be a law that forces lenders to pay you the difference of the loan once the lender has taken physical possession of your car and sold it. On the other hand, it is possible to default on the loan and not receive any money for your car, even if your loan was only for a couple hundred dollars. 

This happens because car title loans are over-secured; in other words, the maximum amount that you can expect to receive is usually 25 to 50 percent of your car’s estimated value. However, if you cannot make payments, the lender will sell your car and keep 100 percent of the profit for themselves. The lender may also choose not to sell your car but take you to court instead, tacking on finances charges and court costs on top of your existing loan.

More Secure Financial Alternatives

Unfortunately, car title loan lenders promote their services by promising funds to those who would not otherwise have the credit or income to be approved for a loan. While this may be true, a car title loan is not your only option.

Research credit unions in your areas that offer low interest rates and fixed repayment plans to avoid rolling over a loan. Set up a direct deposit out of your paycheck so that you never miss a paycheck and the loan will be paid in full. You could also consider borrowing from friends or family, small consumer loans, emergency community assistance, cash advances on credit cards or paycheck cash advances from your employer.