Information on Title Loans — High Interest and Costly Title Loans
Written by: Kristy Welsh
Last Updated: October 5, 2017
When you're in a pinch with nowhere to turn for help, title loans can seem a saving grace. Unfortunately, the nature of the beast is one that can prove your worst nightmare. Before you, or anyone you care about, takes out a title loan, get the facts and reconsider.
What is a Title Loan?
A title loan allows you to borrow money against the equity in your car. The lender, in turn, holds onto your title until you pay back the loan in full.
How Long Do I Have to Pay Back a Title Loan?
Though most title loans come with contracts requiring you to pay the loan back within 30 days, it is remarkably easy to renew your contract. In other words, you could have an indefinite period of time to back the loan (i.e, an indefinite period of time for the lender to continue making money off you).
How is a Title Loan Different From a PayDay Loan?
A title loan is secured, whereas a payday loan is not. The only thing a lender holds against you with a payday loan is the post-dated check they will cash on the due date (unless you pay with cash prior to or on the due date). While that is disturbing enough, with a title loan, if you fail to pay on time, they can do more than cash a check; they can repossess your car. Many payday lenders in states where payday loans have been outlawed are now focusing their efforts on title loans instead. Unfortunately, this sends mixed messages to consumers, implying that payday loans are bad, but title loans are okay. On the contrary, they can be equally costly and predatory.
How Much May Be Borrowed Through a Title Loan?
The amount of your title loan is based on a percentage of the value of your car — a percentage that varies by lender.
What Are the Interest Rates on Title Loans?
Though it varies by states, title loans can have annual interest rates of up to 300 percent.
Are There Any Other Fees Charged For Title Loans?
In addition to interest charges, title loans may include fees for initiating the loan, extending the loan, or late payments.
Can a Title Loan Be Renewed?
Yes, as mentioned above, title loans may be renewed indefinitely. While this may seem an attractive option in the moment, when you are struggling to pay back the loan, the long-term consequences of title loan renewal are quite costly. If you get caught up in this cycle of renewal, paying only the minimum required for extension, you could spend hundreds of dollars on interest fees in just a few months time with none of it ever going toward paying down the balance.
Can I Pay Off a Title Loan Early?
Though you may be able to pay back your title loan early, you will probably still be required to pay the full interest rate for the full length of your contract.
How Much Will I Really End Up Paying For a Title Loan?
Beyond the principle balance that must be paid back, your title loan will include interest charges and may include other fees. So, how much you end up paying depends on the amount of your loan, the interest rates and fees charged by your particular lender, and how long you have the loan. If you pay the loan off right away, and do not renew (or go back for more), your charges may be minimal in the grand scheme of thing. However, if you extend the loan, you could end up paying many times more for the loan than the original loan amount. For example, CreditSlips.org shares the story of a man who extended a title loan 40 times, paying over $10,000 in interest on a title loan of just $1,500.
Can a Title Loan Lender Really Repossess My Car?
Yes, they can repossess your car if and when you are late with your payment. It's estimated that as great as 10 percent of title loan borrowers lose their cars to repossession, an especially disturbing repercussion considering that 15 percent of borrowers take out the loan on their only means of transportation to and from work.