Consumer Guide: Predatory Car Title Loans

Consumer Guide
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Car title loans are small-dollar, short-term loans that carry triple-digit interest rates designed to drive you deeper into debt and ultimately take away your vehicle. While The Center for Responsible Lending says some states have passed laws that limit the damage these loans can have on you and your family, for the most part, car title loans remain a bad deal for everyone.

If you’re strapped for cash, you may be tempted to respond to lenders who market “car title lending”– loans that require you to risk losing your car. Before you or your family sign away your transportation, check out these four signs of a predatory car title loan from The Center for Responsible Lending. You’ll see why most car title loans are just a financial wreck waiting to happen.

SIGN #1: HIGH INTEREST RATES

  • Though car title lenders often express the cost of their short-term loans through fees, a typical car title loan may have a high annual interest rate of 300% or more.

SIGN #2: QUICK DUE DATE

  • Most car title loans are due within a month. Such quick due date will make it harder for you to pay off the loan on time, leading you to a cycle of repeated loans that leaves you worse off.

SIGN #3: VEHICLE AT RISK

  • Title lenders secure their loans by holding onto the title of your vehicle. If you cannot pay off the loan when itʼs due, the lender may take your car away.

SIGN #4: CYCLE OF DEBT

  • Itʼs not unusual for this short-term loan to end up as a cycle of long-term, high-cost debt. In Missouri, for example, the state auditor found that car title lenders make 3.5 times more renewal loans than new loans each month. 

 

HOW TO AVOID TITLE LOANS

If you still need to consider a car title loan, keep in mind the following tips from The Center for Responsible Lending before you give away your vehicle:
1. Pay attention to the APR. 
  • Car title loan rates can range from 84% to as much as 300% and more.  Don’t be fooled by the “small and easy” initial fee, more often than not, people end up taking loan after loan in an endless cycle of debt.
2. Shop Around. 
  • Because car title loans are heavily advertised as quick and easy ways to give you instant cash, you may fall easily into their trap, but before you sign your car away, go to your nearest bank or credit union to see what other options they may have; or if you can help it, avoid a loan altogether by asking your friends and family for help.
3. Keep a savings account for a rainy day.
  • It’s possible. Keeping a few extra dollars in a saving account can help you avoid being caught by title lenders next time you are in a bind.
3. Stay clear from of all predatory loans. 
  • Payday loans, refund anticipation loans, and overdraft loans are not better options, so stay clear from all those false choices as well.
4. Avoid forced arbitration clauses
  • If you must take out a car title loan, be sure to avoid any forced arbitration clauses in your contract so you may take any disputes or complaints directly to a judge.
5. Help enact a fair 36% interest rate.
  • You can help others avoid dangerous interest rates by contacting your representatives and asking them to enact a fair rate on these loans. A reasonable 36% interest rate is the only way we can ensure that consumers like you receive a fair rate in their title loans.
 
RESOURCES

Copyright 2020 Nexstar Broadcasting, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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