Car Title Loans
Car title loans are like payday loans in that they can get you money fast and you still get to drive your car. The trouble is that you have basically “given” the ownership of the car to the car title company and if you do not repay the loan as stipulated, you can lose your car altogether. Annual interest rates are astronomical ranging up to 300% plus finance charges and the loan usually has to be repaid within a month. One more thing, the amount of the loan is probably not going to be even close to what the market value of the car is worth.
Meanwhile, efforts to legislate the industry have sometimes been and continue to be uphill battles for many states. The car title loans lobbyists support millions of dollars in advertising and in wooing those in the legislature and their allies to support their industry. Car title loan companies defend their positions by saying they comply with federal laws on disclosure and that they are providing a service to the consuming public. The advertisements for title companies include enticing phrases like “motor vehicle equity lines of credit” or “sales and leasebacks”. Consumer advocates fear that these companies prey on the middle and low classes, those who can least afford the payback schedules. According to Jean Ann Fox, director of the Consumer Federation of America says “Title loans trap borrowers in perpetual debt through unaffordable balloon payments, high interest costs, and the threat of repossession.
How big is the problem? According to the latest statistics car title lenders are in almost half the states. Currently only a relatively few states have laws about how much the lenders can charge. In 2007, it is estimated that the industry generated some $40-billion in loans, according to the Center for Responsible Lending. What’s more, it’s getting worse as the nation plunges into recession while goods and services, we are told, will see much higher prices in the coming years.
What’s Being Done About It? There is movement out there from both consumer advocates and those in power who can legislate change. One state, New Hampshire, tackled its consumer debt problem on both pay day lenders and car title loans. Georgia does not permit it at all. Oregon and Colorado cap payday loans at 36% annual rate of interest. Other states who have successfully taken on high interest rate lenders include Iowa, Nevada, Mississippi, Oregon and Utah. Other states are currently reviewing the matter and solutions.
At the federal level a bill passed limiting payday loan rates and other high interest rate loans to military personnel at 36%.
Other states have not fared as well, at least not yet. In California and South Carolina, lenders make loans that come just under the amount the rate caps there, so the industry continues to thrive. In Virginia, Iowa and Kansas, lenders word their contracts with open-ended terms which gets them around state law legislated for small loans.
For the specific lending rates and disclosure information, check your state online website or call any consumer support group before making that important borrowing decision.
