Car Title Loans — Get a Loan, Lose Your Car

Thinking about getting a car title loan, to tide you over? Don’t do it — unless you can afford to lose your car. Car title lenders trap consumers in loans they can’t afford, then take their cars.

Warns Tiffany Richardson, a Houston, Texas area nurse who lost both of her cars to a car title lender: “No matter how bad it gets, do not go.” — Texas Tribune, August 23, 2014.

Sometimes they refuse to accept payments made via phone or other means, in hopes you will default. Then they pounce, and grab your car. They make a killing when they get to collect payments from you, plus end up owning your car.

Car title lenders in California often lure consumers into loans bigger then they need. Why?  Because there is no cap on the interest they can charge for loans over $2500. So even if you want a loan of only $600, they will tell you that you should get a bigger loan, over $2500. That way,  they can charge you absurdly high interest rates — and are more likely to end up seizing your car.

Better alternatives:

Borrow from relatives

Get credit counseling from a non-profit credit counselor approved by the Federal Trade Commission who can help you figure out a better way to deal with debt

Sell your car and get a less expensive car, take public transportation, or rent a car while you get back on your feet

Read more:

Texas Tribune / NY Times report “Thousands in Texas lose cars to car title lenders”

 

Car title loans — who pays, who makes a killing?

High-cost car title loans are illegal in most states. That’s because they’re so risky for borrowers, often ruining lives. Particularly when people lose their cars — usually their only way to get to work — and then their jobs.

In 2004, in response to a two-part series of front-page reports by David Lazarus in the San Francisco Chronicle, exposing the seedy but growing car title lending business, California legislators vowed to put a stop to title loans.  Fast-forward almost a decade, and what’s changed?  Nothing — except the shady, predatory businesses continue to expand and cost more consumers triple-digit interest, and often their vehicles.

How high is the default rate for car title loans? At a hearing before the California Assembly Banking Committee, Oscar Rodriguez, CEO of LoanMart, testified on behalf of the leading trade association for car title lenders operating in California.  When asked, point-blank, he admitted that while some lenders have default rates of 14-15%, others have rates up to 40-50%. This is astronomical, and powerful evidence that the loans are predatory — not designed to aid the borrowers, but to strip them of their only valuable material possession — their car.

California caps the interest rate on some loans below $2500. So title lenders skirt the law by talking consumers who seek smaller loans into getting loans over the $2500 threshold. Consumers naturally assume that must mean that they qualify to borrow more, based on their income or creditworthiness. In reality, their credit has nothing to do with the loan amount. As long as the lender can seize their car, and it’s worth much more than the loan, there’s no risk for the lender.  Of course, the bigger loan increases the risk for the borrower.

As the Attorney General of Florida warns: “Remember that a title loan is not risky for the lender but it may be very risky for you.”  How to protect yourself: title loans

So who benefits from car title lending? Award-winning journalist Gary Rivlin’s portrait of who’s living high off the hog thanks to high-cost loans, including car-title loans:

Portrait of a Subprime Lender

What can you do to avoid the car title lending trap?  If at all possible, save up instead of getting a loan. If that’s not possible, find other, less-risky ways to borrow money.  Some lower-risk options: Join a credit union. Seek loans from family members. Sell your car and buy a less-expensive one. Usually, you’re much better off selling it yourself than having it repossessed by a car title lender.

Read more:

Auto-title loans drawing scrutiny — Sacramento Bee, by Personal Finance Columnist Claudia Buck

‘Car-title loans’ a road to deep debt  — San Francisco Chronicle, by Business Reporter Carolyn Said

How to protect yourself: title loans — What else can you do in a pinch, that’s less risky? Advice from Florida’s Attorney General