Title Loans (Car Title Loans)
A Title Loan is a short term loan - usually for 30 days - which is secured by title to a car or other vehicle.
A title loan gives the borrower almost instant cash while allowing the borrower to continue to use the vehicle.
Lenders generally solely look at the then current value of the vehicle when considering whether to give a title loan, The credit history of the borrower is not relevant.
If the borrower cannot repay the loan in full, the loan must be extended or there is a risk of losing the vehicle. An extension involves additional fees and interest. The Center for Responsible Lending and the Consumer Federation of America issued a report in 2005 based on information received from regulators in 21 states and publicly available information. They found that:
- People who use a Title Loan usually cannot afford to repay the loan and to also pay for daily living expenses. That means borrowers are likely to renew their loans multiple times. The average car title borrower renews the loan eight times, paying $2,142 in interest for $951 in credit. The effect is that what appears to be a short term loan, frequently turns into a long term loan with high fees and a high interest rate with borrowers paying more than twice in interest over the loan they receive.
- It is difficult to walk away from a Title Loan because of the potential loss of the vehicle. One in 6 borrowers faced repossession of their vehicle. Repossession fees averaged one half of the borrower's outstanding loan balance.
One way to find title lenders is through the Title Loan Site. In addition to asking friends, you can search on "Title Loan (name of state)"
The process: The process for taking a Title Loan is generally as follows:
- Drive your vehicle to the title lending company with:
- A driver's license
- Car title
- Spare key (so the lender can repossess the car if the loan isn't repaid as agreed)
- Proof of auto insurance in amounts required by the state in which you live
- Up-to-date car inspection if required in your state
- If available, a recent pay stub. Some lenders do not require that you be employed or proof of income. ( As a general matter, borrowers do not have to have a bank account.)
- The lender determines how much to lend based on the wholesale value of the vehicle, which includes the vehicle's condition
- Get cash. Set an appointment to repay the cash in 30 days.
- Use the vehicle.
- Return with the cash in 30 days to buy back the title or pay a fee to extend the loan.
Before you take a Title Loan, consider the following:
- Alternatives. For a list of alternative sources for obtaining a loan, click here.
- Shop around. not all lenders have the same standards,or charge the same fees and interest rates.
- Do not be fooled by a "free" or low cost loan for the first 30 days. Lenders make up for the low cost if you (like most people) cannot repay the loan in just 30 days by charging fees and an increased rate of interest.
- Keep in mind that Title Loans are not legal in more than one half of the states. There's a reason.
- Check the real interest rate - not a come-on rate for the first 30 days.
- Are there options depending on your income?
- Does the lender allow you to drive the vehicle while the loan is outstanding?.
- Look at the lender's history.
- Is the company new or has it been around a while, say for 5 years?
- What experience have other people had with the company? If you do not have friends who have borrowed from the company, search in your favorite search engine for the name of the company. What do other people have to say about it? Check with the local better business bureau. (You can find the bureau nearest you at www.bbb.org )
- If a license is required in your state, does the company have one? (To find out, check your state's Department of FInance. For contact information, search in your favorite search engine for "Department of Finance (name of state)".
- For peace of mind, check the law in your state to find out what the lender has to do before your vehicle can be repossessed. For instance, the amount of notice that must be given, and how notice is given. To find the law in your state, call your state's Attorney General office.
- Last, but not least, read the fine print carefully (or ask someone to do it for you if you are not comfortable with legal wording). For instance, check to see if the vehicle can be repossessed if your driver's license is suspended.
NOTE: Before taking a Title Loan, find out if you can borrow the money elsewhere. For instance:
- Borrow from family and friends. We show you to ask family and friends. Click here..
- Look for ways to save money in your daily life. For tips, click here.
- For additional tips, see: How To Deal With A Financial Crunch