Auto Title Loans

Auto title loans are marketed as fast and easy solutions to common financial emergencies many consumers experience. However, in most cases this type of loan only creates more financial problems as the typical borrower finds it difficult to meet the terms of the loan. An auto title loan uses a borrower’s personal vehicle as collateral and additionally charges sky-high interest rates similar to those charged for payday loans.

Typically, the amount of an auto title loan is much less than the market value of the vehicle. When a consumer takes out an auto title loan, the terms of the loan agreement states that the borrower must repay the loan in full in as little as 10 days or up to a month or longer.

Many Borrowers Become Trapped in a Debt Cycle

Because these are very short-term loans, repaying the debt is very difficult for the average borrower. When a borrower does not pay off his or her loan, the lender can and will repossess the car to put the borrower in an even worse situation. He or she will be left with no vehicle and will most likely become trapped in a vicious cycle of not being able to repay their debt.

According to a joint research report conducted by the Center for Responsible Lending (CRL) and the Consumer Federation of America, vehicle title loans cost US consumers $3.6 billion a year in interest on $1.6 billion in loans. These loans which are very tempting to many people who find themselves short on cash feature very high (sometimes triple-digit) interest rates, which creates a debt trap of sorts, leaving far too many consumers worse off than when they started.

In California, interest rates on consumer loans below $2500 are capped at 30 percent. However, interest rates on loans above that amount do not have any limit which is a leading reason the auto title loan industry is thriving. Title loan companies typically loan less than half of the actual market value of the vehicle. This means that even if a borrower falls behind on his/her payments and the vehicle is repossessed, the lender will profit from the loan transaction.

A title loan company is not interested in making their loans easy to pay off for borrowers. In fact, on most title loan company websites, interested borrowers are told that they are not required to be employed or need to have  a savings account in order to qualify for a loan. These lenders are only looking out for their own interests and bottom line which is to make as much money as possible at the expense of vulnerable consumers who are in need of fast money.

California is one of just over two dozen states that allow these loans. However, the California state legislature may end up passing SB 515, a short-term loan lending reform bill that puts an end to the debt cycle these loans often cause. This bill proposes a series of reforms to allow these loans to better serve their purpose while making them safer for consumers.

Protecting Yourself

If you find yourself in a situation wherein you are in dire need of cash, you may be tempted to contact a lender who is advertising auto title loans – a type of loan that require you to use your vehicle as collateral. Before you sign a contract that puts you at risk for losing your vehicle, be aware of these warning signs of predatory car title loans.

  • Sky-High Interest Rates – Although auto title lenders make much of their money from the fees associated with the short-term loans they offer, the typical auto title loan may come with a high annual three-digit interest rate.
  • Quick Due Date – The majority of auto title loans are due within 30 days. This type of short-term loan can be very difficult or even impossible to pay off on time which could send you spiraling into a continuous cycle of debt that only worsens with time.
  • Putting Your Vehicle at Risk – Title loan lending companies secure their loans by holding onto the titles of the vehicles owned by the borrowers. This means that if fail to pay the loan off in its entirety when it’s due, the lender will take your vehicle from you.
  • Cycle of Debt – The worst result of auto title loans is the unending cycle of debt the average borrower becomes trapped in. If you are already struggling to make ends meet, risking getting into more financial hot water by taking out an auto title loan is not worth it.

What to Do If You’ve Been Caught in the Auto Title Loan Trap

If you have already had the misfortune of having your vehicle was repossessed by an auto title loan lender, Chapter 7 bankruptcy allows you to clear yourself of any remaining monetary obligation to the lender. If you are still in possession of the vehicle, Chapter 13 bankruptcy gives you the opportunity to obtain a more desirable, lower interest rate on the loan wherein you’d be able to meet the repayment terms.

If you would like to discuss your rights regarding an auto title loan agreement you entered into, contact our California law firm. We will review your contract and discuss the circumstances of your case with you to help determine what action you should take. There are federal and state laws in effect which protect consumers against fraud. Our attorneys work hard to fight for the rights of each of our clients and we promise to do the same for you.

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