By Chuck Bentley

A car title loan is a loan where you give the lender the title to your car in exchange for a small amount of money. The loan usually only lasts for 30 days. If you don’t pay them back, they will take your car. Many people get car title loans, but these loans are a bad idea!

The main problem with these loans is the extremely high interest. Most lenders charge interest rates of 25 percent or more per month, adding up to an annual percentage rate of 300 percent per year. If you can’t pay, the loan will most likely be rolled over. The loans are usually rolled over eight times.

You take all the risk of possibly losing your car and pay an outrageous interest rate!

Create a better way to have access to cash by creating an emergency savings account. Imagine having $1000 cash in the bank and borrowing the money from this account. Now imagine paying it back with 25 percent interest in 30 days. That would mean you borrow $1000 from yourself on the first of the month and by the end of the month you have $1250 in your emergency savings account. If you roll this over eight times like a car title loan…well, do the math…in eight months you could save over $5900. So what do you think is better: A car title loan or an emergency savings account?

So how do you begin? Set a goal to save $1000 by saving a little—whatever is possible…$5, $10, $100 each month. Put it in a safe place where you won’t touch it. Develop a habit of doing this until you reach your goal. You’ll be so glad you did!

Originally posted 6/1/2015.