Toronto Auto Finance Options

Car Loan Toronto

There are many types of auto finance options available to car shoppers in Toronto. While most of them are excellent products, provided you've done your homework and shopped around for competitive rates, some of them aren't.

You should know that we're not talking about subprime car loans. Those loans, even with some fairly high interest rates, can help you reestablish your credit so that the next time you apply for auto finance (provided you've made your payments on time) you can qualify for a lower interest rate and eventually qualify for a competitive interest rate. No, what we are talking about is what's called a"Car Title Loan."

Car title loans are not auto finance loans, but personal loans that are secured by the title to your vehicle. They are meant to appeal to those people who need immediate cash and have no other way to get funds quickly. In order to qualify for this type of loan, you need a car that has a clear title (one that is paid off and is not being financed).

Typical loan amounts range from $175 to $2,500 and the duration of the loan is usually 30 days. Interest rates are loosely regulated in the states they are offered and average 30% per month - and no, that was not a typo. In addition, the loan company usually charges an origination fee. The storefront locations these companies operate out of don't offer auto finance loans, but most also offer check cashing services and, in some cases, pawn loans.

Here's how the loan works: When you take out a $500 car title loan, you give the auto loan finance company your free and clear car title as well as an extra set of keys (if you default on the loan, they'll repossess it, regardless of how much it might be worth). You pay them the $15 origination fee and sign a document that says you will pay them $150 in interest (30%) plus the $500 in principal in 30 days. If you don't have the entire amount in 30 days, the loan company will allow you to roll over the loan for another 30 days, provided you pay them the interest amount. Most states will allow this type of rollover to occur at least four times.

Here is the true cost: If you ended up rolling over the loan twice, for a total of 3 months, it would look like this:

• $15.00 origination fee plus
• $450.00 interest charges

This amounts to a total of $465.00 in interest and charges to borrow $500.00. This equates to an annual interest of 91%. That's right, you just paid 91% in interest charges for a four month loan.

The bottom line to this type of auto finance loan is that it's predatory and should be avoided by consumers at all costs. Before entering into this kind of an agreement, you should think carefully about signing any document that could cost you high interest fees as well as the loss of your only means of transportation.