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Money and Mobility
Pawnshops and Title Loans |
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Some people use pawnshops to get a quick loan. But the amount
of money you’ll get for your possession usually is only
a fraction of its value. Many pawnshops also make loans based
on car titles. These loans are expensive and you could lose
your car.
Here’s an example: You have a car worth $5,000 and
decide to get a title loan from a pawnshop. The pawnshop may
loan you about $1,000—in exchange for the car title.
You agree to pay the loan back in six months and the pawnshop
charges you about 10 percent interest a month on the loan.
This is what your $1,000 loan could cost you:
Loan amount
(pawnshop keeps the title to the car, worth $5,000) |
$1,000 |
Interest charged
(10 percent a month for six months) |
$600 |
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| Total cost |
$1,600 |
As you can see, $600 is a lot of interest to pay on a $1,000
loan for six months. But if you fall behind in your payments,
you’ll face even more charges. The pawnshop could have
your car repossessed—and charge you a fee for the repossession.
Also, if your car is stored on a lot, you’ll be charged
a storage fee. If you fail to pay all of these fees, the pawnshop
has the right to sell your car. This is a high price to pay
for a loan. Consider other options.
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