Microcredit: The Risks of Taking out a Car Title Loan

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“Give a man a fish, he’ll eat for a day. Give a woman microcredit, she, her husband, her children and her extended family will eat for a lifetime.” – Bono

The microfinance industry was initially developed as a way to provide banking services for the sector of the global population who earn too little to qualify for traditional banking services. Furthermore, this industry is designed to protect poverty-stricken from borrowing money from unscrupulous loan sharks. It must be noted, however, that even though by conventional standards, the interest on microcredit is exorbitant, it is still a lot less that what borrowers would be charged by loan sharks.

Microfinance: Microcredit and car title loans

It is also important to note that taking out a loan involves a certain amount of risk on the part of the borrower and the lender. This point is exacerbated in the microfinance industry as people who apply for microcredit do not have a high credit rating. Furthermore, they also do not earn large sums of money every month. Ergo, the risk of the borrower not repaying the loan to the lender is high which is why microcredit interest rates tend to be high.

Additionally, car title loans are microloans, and they fall within the microfinance sector. In short, a car title loan is a loan which take the borrower’s vehicle title deed as collateral for the loan. In other words, should the borrower not repay the loan within the stipulated timeframe, the lender has the right to take ownership of the car and sell it to cover the cost of the loan.

Risks of microcredit

Even though the microfinance industry is designed to help the economically-disadvantaged start businesses, taking out any loan is never an ideal situation. However, there are some cases where a loan might be necessary. For example, should you wish to start up your own micro-business (as per Bono’s words above), and you need capital to purchase stock as well as to cover your initial months’ overheads. Furthermore, you might need to expand our business, and you need additional provide capital to fund the expansion.

Finally, it is important to note that, as with all business decisions, there are risks involved with taking out a loan. The onus is on you to determine whether the expected outcome is worth the risk: Thus, the biggest risk, as noted above, when applying for a car title loan, is that you have to attach your vehicle title to the loan application. Should you not be able to repay the loan, the lender has the right to foreclose on your motor vehicle

On the other hand, car title loans Los Angeles allows up to 36 months to repay the loan. The good news is that the option of paying the capital amount plus interest is mitigated by the fact that you have longer to pay the loan off. It must be noted, however, that the longer you take to repay the primary amount, the more interest you will pay. However, the interest can be worked into the running costs of your business.