Wanna get fast coin using your car as collateral? Sounds easy enough and according to one company who does title loans in Baltimore you only need the following to qualify for a title loan:
- A clear vehicle title
- 2000 or newer vehicle (some exceptions may apply)
- A car close to or fully paid off
- 18 years or older
But before you sign up consider the risks, pitfalls and exactly how title loans work. We understand the need for quick cash but critics contend these loans often come with ridiculously high interest rates and that lenders aren’t always transparent regarding the payments. This can be a real risk for borrowers who just want to get the cash and may not be paying close attention to the fine print. Because the interest rates tend to be so high you simply want to avoid title loans all together or at least be certain that you can quickly pay it off. Here’s what we learned:
The Risks > Defaulting on the loan is the most common problem according to The Pew Charitable Trusts. The Pew report states that of the more than 2 million consumers who obtain title loans, 1 out of 9 consumers default on their loan, and that repossession affects approximately 5 to 9 percent of borrowers who default. Additionally the Vice President of state policy at the Center for Responsible Lending has implied that car title loans are often impossible to repay because this type of loan is used almost exclusively by borrowers who are already experiencing financial difficulties. He cites a 2007 study by the Center for Responsible Lending which shows that 20% of title loan borrowers in Chicago who took out a loan in order to repay a previous loan to the same lender. Some say title loans are the cousin of unsecured loans, such as payday loans. Since borrowers use their car titles to secure the loans, there’s risk that the borrower can lose their vehicle by defaulting on their payments due to personal circumstances or high interest rates, which almost always have APR in the triple digits—what are sometimes called “balloon payments”.
How They Work > Title loans are a secured loan where borrowers can use their vehicle title as collateral. The lender places a lien on your car title and you temporarily surrender the hard copy of your vehicle title in exchange for a loan amount. When the loan is repaid, the lien is removed and the car title is returned to its owner. If the borrower defaults on the payments the lender is able to repossess the vehicle and sell it to pay off the borrowers debt.
These loans are typically short-term and lenders typically do not check the credit history of borrowers. The value and condition of the vehicle that is being used to secure it is the primary determining factor of how much can be loaned.
How To Apply > Most title loans can be acquired in 15 minutes or less on loan amounts as little as $100. Most other financial institutions will not loan under $1,000 to someone without any credit as they deem these not profitable and too risky. In addition to verifying the borrower’s collateral, many lenders verify that the borrower is employed or has some source of regular income. The lenders do not generally consider the borrower’s credit score.
Availability > Title loans first emerged in the early 1990s and opened a new market to individuals with poor credit and have grown increasingly popular, according to studies by the Center for Responsible Lending and Consumer Federation of America.
Another version of title lending that exists in many states is called a title pawn or auto pawn. Similar to a traditional car title loan, but a title pawn uses both the car title and the physical vehicle which gets stored by the lender to secure the loan. So the borrower can get more cash in the transaction but is also without a car since the lender has both the vehicle and title in their possession.
Some states have made title loans illegal because they are considered predatory lending or welfare-reducing provision of credit. Somes states have placed strict regulations on title loans by not allowing the APR to reach above 36%. Only about 20 states allow title loans including Alabama, Arizona, California, Delaware, Georgia, Idaho, Illinois, Kansas, Louisiana, Mississippi, Missouri, Nevada, New Mexico, Ohio, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wisconsin.
Even th
ough states are placing stringent restrictions regulating the companies who offer these loans is not easy. The Consumer Financial Protection Bureau and the Federal Trade Commission are responsible for enforcing the laws. Many view title loans and payday loans as a form of entrapment where taking out one of these means that borrowers will find themselves cycling further into debt with less chances of getting out of debt when compared to not taking the loan out at all. Some reports show that 75% of payday loans are taken out within two weeks of the previous loan in order to fill the gap in finances from when the loan was originally taken out.
Auto title loans may not be worth the access to quick cash when you consider the facts and risks. We hope you’re able to find an alternative route to getting the short term cash you need. If not, we sure hope you have a good plan to repay that loan quickly. And if you need help check out this free resource on dealing with debt.
