A car title loan is a loan that is secured by your vehicle. Your car will be used as collateral to get the loan. If you do not make payments on your loan, the lender can take the vehicle. People who are desperate for money and do not have good credit might try to obtain a car title loan. They do not conduct a credit check, and the requirements are minimal. Here are some of the statistics regarding car title loans.
Last year, around 2 million individuals used their car title to secure a loan. (http://www.loancheetah.com/news/cfpb-data-car-title-loans-inaccurate/) Out of the 2 million, 80% rolled over their loan, so instead of a short-term loan, it became a long-term loan, with interest piling up. With the struggling economy, the title loan businesses has really become popular. Thousands of stores have opened throughout the country. Banks are getting more reluctant to offer personal loans at a decent rate, so people are turning to car title loans to get money.
For the average title loan of $1000, you will spend approximately $1200 in fees. Overall, customers pay $ billion in fees annually. If you pay the title loan in one lump sum, it will take about 50% of your income. If you add up the numbers, you cannot afford it. (http://www.pewtrusts.org/en/research-and-analysis/reports/2015/03/auto-title-loans)
The normal annual percentage rate for a car title loan stands at 300%. This makes getting a title loan a bad idea. Many states like Arizona have banned title loans altogether because of their predatory lending. For example, if you get a $3000 loan and are paying $400 a month. After the first 7 months, you will have paid at least $2800 just in interest. You will still owe the principal balance of the loan. Before you agree to a title loan, you need to read the agreement and the fine print. Title loan companies advertise aggressively because they want your business. They could trap you until you are stuck and can no longer make payments. The number of people who are taking out title loans has doubled in the last few years. (http://www.loan.com/car-loans/what-is-the-average-interest-rate-of-a-car-title-loan.html)
In addition to the interest, there are other fees that you will be charged. You could be charged a processing fee, origination fees, lien fees, and late fees. For a $500, these fees could add up to more than $100. You will pay all these fees, and then you will still owe the principal balance. You keep paying and paying, and see very little dent in your principal balance. (https://www.titleloanser.com/stats/car-title-loan-statistics-trends-facts/)
Around 1 out of 6 people who get car title loans will have them repossessed. About 1/3 of those do not have another vehicle that is operable in their household. If the vehicle is repossessed, the lender will sell your car to recover the balance that you owe. In most states, any balance that is remaining will be given to you. If you quit making payments, a repossession man will be sent to your home to take your vehicle. You do have the right to get your personal belongings out of the vehicle. Most states like Delaware will allow you to have the opportunity to get your car back before it is auctioned. If you can pay what is owed on the vehicle before it is auctioned, most lenders will allow you to get your vehicle back. Overall, 120,000 to 220,000 people will lose their car to repossession each year. (http://www.drive-safely.net/reposession-from-a-title-loan/)
Only a fourth of the people who take out car title loans use it for emergency expenses. Everyone else uses the loan to pay their bills. 90% of these loans were taken out for personal reasons. The others were for business reasons. Many people could not make their monthly obligations, so they turned to title loans just to keep their bills current. A few people have unexpected medical bills, car repairs, or home improvement that they need the money for. (http://www.pewtrusts.org/en/research-and-analysis/reports/2015/03/auto-title-loans)
The majority of borrowers believe that the title loan industry should be regulated. People believe that they should have the opportunity to pay back the loan in affordable installments. Car title loans are badly regulated. Regulations in the states in which car title loans are legal have very loose mandates. Some states have no cap on loan limits. Some car title loan lenders use loopholes to get around the law. Lenders find creative ways to get around the regulations. For example Native American tribes can find ways to avoid the state and federal laws. Some cities in Texas have passed restrictions; however, at some places, lenders have gotten around that by offering “free” loans. Currently, the Consumer Financial Bureau is thinking about additional mandates on car title loans to make them more affordable, so people can pay them back more easily. (http://www.cheatsheet.com/personal-finance/5-shocking-facts-about-car-title-loans.html/?a=viewall)
There are about 7700 licensed car title lenders in 21 states around the country. Borrowers will pay billions in interest each year. The average borrower rolls over the loan 8 times, paying an enormous amount in interest. Here are several reasons why car title loans appeal to people:
• You can keep driving the car
• No credit check
• No income requirements
• High Rate of Acceptance
• You can roll it over
• Customer Service
Many people who need money do not think it through. They are so desperate that they will do anything to get money in their bank account soon. Just keep in mind that this is a very expensive type of lending, and it could get you in a cycle of debt.
If you are thinking about a car title loan, look at these statistics to see if it is right for you. Each state has control over its title loan industry. The states that allow title loans realize that consumers are not able to get traditional loans, so they need to resort to title loans to get money.