What is an Auto Title Loan?
An auto title loan is a loan in which the individual uses their car as collateral. The loan usually exceeds no more than 30 to 50 percent of the car's overall value and the car's title and cars are secured by the loaning company. These types of loans have been banned in more than half of the United States. The remaining states that allow this sort of lending have placed rigorous restrictions and laws in place to protect individuals from predatory lenders.
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Auto Title Loans
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Auto title loans have been banned in many states due to their high price lending requirements. Most auto title loans lend at a rate of 300 percent of Annual Percentage Rates and higher. Though the loan amounts are often quite small, the annual percentage rates are so extreme that most individuals cannot pay the full amount when due and thus have to renew the loan. Renewing the loan causes for additional fees and interest. Statistics show that many auto title lenders make '3.5 times more renewal loans than new loans each month.'
How it Works
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If a title loan is considered, the individual must take the vehicle to the lender for inspection. When inspecting the vehicle, the vehicle's value is considered based on mileage, year, and condition. While the Kelley Blue Book value may be considered, many lenders determine their own vehicle values. Based on the vehicle value, a loan amount is then offered. The loan offering is never more than 50 percent of the actual appraised vehicle value. Should an agreement be made, the loan is completed with document signatures, copies of the vehicle keys and by turning over the title. These are short term loans and hence are usually required to be repaid within 30 to 45 days. If the individual is unable to repay the loan by the due date, the lender will repossess the car. The car is sold and the money is used to settle the balance of the loan. In addition, any additional funds obtained from the selling of the vehicle is also retained by the lender.
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The Facts
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Auto title lending has been banned in more than half of the U.S. because of its predatory lending activity. Because the loan's interest rates are so high, most individuals are faced with difficulty when repaying the loan. Oregon statistics show that more than 19 percent of auto title loan customers renewed their loans six or more times prior to paying off the loan. Most lenders provide no notification prior to vehicle repossession and face losing equity in their vehicles after the lender has sold their vehicles for repayment. State regulations have made efforts to eliminate, if not control the loan activity. Several states, including New Hampshire and Iowa, have placed caps on the loan interest rates. Rather than a high 300 percent, the rates have been capped to 36 percent.
Be Safe
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Before you consider taking an auto title loan, consider other options with lower interest rates. You may be able to take a loan with financial institution that can provide a more competitive rate over a longer term. A longer payment term will reduce your monthly payments and allow you to retain your vehicle's ownership.
Be Cautious
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If you decide to complete an auto title loan, be cautious. Read the contract in detail before signing the documents and completing the process. Do not be intimidated by the lender's information. If the lender has good intentions, they will answer your questions in detail and not become forceful when speaking about the loan specifics. If you require assistance with your contracts, speak with an attorney or contract specialist for information.
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