Tough times call for creative financing. Many consumers who need short-term loans turn to nontraditional financing such as pawn shop loans, payday loans and car title loans. Pawn shops lend money and hold jewelry, electronics or other personal property as collateral for the loan. Payday lenders give you cash now in exchange for a draw against your next paycheck. Title lenders give you cash and hold the title to you car as collateral for the loan.
The qualifications for an auto title loan are simple. You must own clear title to a car that is worth a minimum amount of money and has fewer than a maximum amount of miles on it. The acceptable value and mileage numbers vary from lender to lender. Some lenders may require you to show proof of income, such as a pay stub, while other lenders will issue a car title loan to an unemployed borrower.
A car title lender requires you to provide certain documentation before lending money to you. You must make your car available for inspection and turn over your original car title. In addition, you must show your valid driver's license, Social Security card, proof of insurance and the vehicle registration. Some lenders may require proof of residency, such as a utility bill or rent receipt, as well as the names and contact information for several references. Many require that you leave an extra key to your car.
The term of most vehicle title loans is 30 days or less; however, most lenders will extend the term of the loan several times, charging a fee for each renewal. Some other fees lenders charge include membership in a roadside assistance plan, lien fees, late fees, document fees and origination fees. If the buyer can't repay the the loan, plus interest and fees, the lender repossesses the car.
Consumer advocates say that car title lenders fail to disclose all the terms of a loan to consumers and that they charge excessive fees. A study conducted by the Consumer Federation of America in 2005 reported that the median annual percentage rate for a car title loan by lenders that offered the loans in the summer of 2005 was 294 percent, not including required fees. Some lenders install GPS tracking devices to make vehicles easier to monitor and repossess. State law regulates car title lending, so practices that are legal in some states may be prohibited in others.