When I tried to make a random searching in the internet, I was so surprised to see so many advertisements on offerings for auto title loans. I was just wondering why so many businesses are now engaged in this line of lending venture. When there are many businesses being established to cater this consumer necessity, then it can be assumed that the venture is profitable and that the business is in-demand. Are there really too many people coping with financial difficulties?
It may be true that the global crisis had adversely affected not only thousands by many millions of individuals and business establishments. And even several years had passed since the on-set of economic catastrophe, people were not able to recover and cope up with the current financial needs. This really paved way for business-minded people to establish lending facilities. And many others follow suit.
It may be thought that both sides benefit from the auto title loan - the lender and the borrower. But is this really beneficial? Any business endeavor involves risk and this auto title loan is not spared from this negative aspect. Who is more affected?
Consider the investor or the financier. As this is a business, the goal is to accrue profits. The income is in the form of interest and service charges. In extreme cases, which neither the lender nor borrower would desire, is income from sale of the repossessed vehicle.
The risk of the lender is the unavailability of the borrower to pay the loan. One instance of default can already send signals on the possibility of one bad account which could eventually end up with repossession of the pawned car. Even if the lender takes the car - it faces several problems on recovery of investment. Is the vehicle still in good condition to be valued equal to the amount of investment? Can the vehicle be easily sold for liquidity to be achieved? The worst risk would be case if missing borrower and car. The borrower has moved out and there is no forwarding address. This is complete lost to the lender.
Now consider the predicament of the borrower. He has availed this loan out of emergency, not thinking of the consequences if he defaults in payment. Non-payment will entail re-possession of the vehicle. This borrower losses his car in exchange for the loan proceeds. Most auto tile lenders grant loans equal to only 30% of the prevailing price of the vehicle. So - when the car is taken by the lender, the borrower losses 70% of the actual value of the auto. This is too much a lost.
The solution to prevent loss can be instituted - that which will benefit both. The lender can give loan relief by restructuring the loan. Although the amount of collected interest is lower, at least there is sure recovery of the investment. On the part of the borrower, he has to determine if he can service the restructured amount. If not, it is best to find a buyer of the vehicle. It would be better to sell it than have it repossessed. This will even give him extra money after the sale.
Auto title loan is a good relief to borrowers as it is a good source of funds. For lenders, this is good business. But the risks could not be discounted so each of the borrower and lender must have strategies to combat the situation.
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