If you are considering whether or not you should get a Title Loan, please make sure you fully comprehend what you are signing up for. This blog post will go into details of Title Loans and what they actually mean to you.
What is a Title Loan?
A Title Loan is a loan that is secured to your vehicle. Title Loans are generally available if you own your car outright and don’t owe any money on the car. Since you own the car and do not have any loans against it, you would turn your title over to the lender in exchange for a short-term loan. These types of loans are generally high interest loans that have a short repayment period.
If the loan isn’t fully repaid within that short period of time (i.e., 3 months), the fees and interest generally get extremely difficult to deal with. Some title loans have APRs in the 300% range when looked at on annual basis. For example, let’s assume that you take out a $10,000.00 title loan that has a 12-month repayment term at 300% APR. This would mean if you take the full 12 months to pay the loan back, you’d pay interest in the amount of $22,213.71! If the repayment period for the above loan was 36 months, you would pay $80,029.22 of interest!
What happens to my car when I get a Title Loan?
When you get a Title Loan, you are voluntarily turning over the title to your car to the lender. This lender will now hold on to the title of your car until you repay the loan terms back in full. Assuming you are unable to pay the loan back in full, the lender has the legal right to repossess your vehicle.
Title Loans are risky because of the exorbitant amount of interest and fees you are signing up for. Generally speaking, people considering a Title Loan are in a financial predicament and need money quickly. The Title Loans are aware of this and are ready to pounce on people in this vulnerable position. These lenders understand that there is a reasonable likelihood of someone getting a Title Loan not being able to repay the terms in full, which would allow them to repossess and sell your vehicle.
How much money do I owe if they repossess my car?
In the situation where you are unable to pay back the loan terms in full, the lender has the ability to repossess the vehicle. Once they repossess the vehicle, they then have the ability to sell the vehicle at an auction. Upon the sale, they use the funds from the sale to credit how much you owe them. Whatever the difference is, you will still owe them that money-----plus any fees they incurred in the repossession and sale process.
At that point, the lender would likely send you a notice stating how much you owe them. If you still do not pay them what they are owed, the lender can bring legal action against you. If they go this route, their goal would be to get a judgement against you for the money you owe them and then either garnish your wages, levy your bank accounts, or put a lien on your house.
Pros of Title Loans
- No Credit Check – One of the big advantages to applying for a title loan is that generally no credit check is done, or a very basic one. Lenders that give title loans understand that title loans are more sought after by people who are having financial issues. These lenders also understand that a lot of people come to them when they have exhausted their other options. That being said, a huge advantage to getting a title loan as opposed to normal financing options through a local banking institution is that the probably of qualifying is significantly higher due to the fact that no credit check is completed. This is why Title Loans are a way for people with bad credit to get financing.
- Very Fast Processing – Another advantage in getting a Title Loan is that the application, approval, and funding process are all extremely quick. In most situations, you only need to take in a copy of your driver’s license, proof of insurance, and a copy of your vehicle’s title to the lender. From there, the application is completed and approval can be as quick as same-day. Once approved, funding for the loan would either be the same day or the following day. This is extremely advantageous for people who need money quickly.
Cons of Title Loans
- Excessive Interest Rates – This is the biggest reason to avoid Title Loans. Interest rates for title loans are extremely high. APR is one of the main data points when looking at interest rates. APR is defined as annual percentage rate, the cost that it will cost over a one-year period to take out that loan. For example, a $2,000.00 loan with an APR of 200% with a repayment term of 12 months would mean that your cost to get the loan (assuming you pay it back in the 12 months) is $2,746.48. Adding the principal plus the interest, you’d pay back a total of $4,746.48.
- Risk of Car Repossession – As the title suggests, a Title Loan is where you trade the title to your vehicle for a monetary loan. Thus, if you default on the terms of the loan, the lender can repossess your vehicle. According to data reported by the Consumer Financial Protection Bureau (CFPB), 1 in 5 (20%) of all debtors who get a title loan have their cars ultimately repossessed.
- Bad Surprises – It is far too common for a person to get a Title Loan without fully understanding the details of that loan. This makes sense when you look at how fast Title Loans are actually approved. Unknown fees, high interest, even the fact that the loan is secured against their car are all surprises that many debtors come to find out after it’s too late
- Risk of Defaulting on the Title Loan – With high interest, unknown fees, already having bad credit, being tight on money and needing to get a Title Loan, all lead to the fact that it’s common for people that get Title Loans to actually default on them. This generally puts you in a worse position that you were prior to taking on the Title Loan.
- Deficiency Balances – If the car is ultimately repossessed, the lender will sell it at an auction. If they are unable to make the entire balance that you owe them, which is very common, they can now sue you for the difference. Now not only do you have to deal with the fact that you no longer have the vehicle, you also have to defend yourself against the lawsuit. If you don’t, you’d potentially have a wage garnishment, bank levy, or lien on your home that would come soon thereafter.
Selling Personal Items – As should be clear by now, Title Loans are very expensive. That being said, if you don’t have the resources to pay the loan terms back with your income, you might end up having to sell your other personal items in order to make the payments. - Filing Bankruptcy – Taking on such an expensive loan puts you at a greater risk of eventually needing to file for bankruptcy relief.
Alternatives to Title Loans
- Have a Garage/Yard Sale – Before taking on extremely expensive Title Loans, look to liquidate items that you no longer need. You can hopefully earn enough money to avoid the Title Loan.
- Get Help from Family/Friends – Rather than taking out an expensive Title Loan, ask a trusting friend or family member if they could assist you. Even if they charge you interest rate on a loan they give you, it will likely be a significantly lower interest rate than the Title Loan company would give you.
- Cut Back Expenses – Take a look at your budget. You might have some places you can cut back on some things and put some extra money into your pocket at the end of the month.
- Get a 2nd Job – If you are needing the money for a certain reason, get a 2nd job (even temporarily) to cover that expense.
- Delivery Services – With the advent of many delivery options, you could consider doing this---again, even temporarily-to cover the expense. You can look into options such as UBER, LYFT, Door Dash, Uber Eats, Postmates, Grubhub, etc.
Things to Consider
Just like any other loan, you should be looking at several factors when considering a title loan. Some important things to consider are:
(1) What are the repayment terms?
(2) How much is the APR (i.e., annual cost of the loan)?
(3) Is there a pre-payment penalty?
(4) Are there any additional fees besides the principal and interest payments?
(5) Can I afford the monthly payments for the duration of the loan terms?
(6) Is there a better method I can use to get this amount of money?
(7) Is my car in good enough condition?
Find a Lawyer to Help with Title Loans
In many instances, borrowers of title loans end up defaulting on the terms of the loan, putting them in a worse position than they were prior to taking out the loan. If you in fact do default on the loan, the lender has legal recourse against you. Upon the payments defaulting, the lender has the ability to repossess your vehicle. Once repossessed, they are then able to sell your vehicle at an auction. After they account for all of the fees involved in the sale and the sale proceeds, they subtract that from your total balance and then send you a bill for the remainder. If you still choose not to pay the lender, they can bring a lawsuit against you in Civil Court. If they succeed in Civil Court, the Court will issue a Judgement in their favor and they can then garnish your wages, levy your bank account, or put a lien on your home.
Having the right legal counsel in your corner could prove to be extremely important when dealing with Title Loans. The good thing is that with knowledgeable legal counsel, a Bankruptcy filing could discharge your personal obligation on any Title Loans or deficiency balances remaining from Title Loans.
Sacramento Bankruptcy Lawyer Pauldeep Bains has experience with Title Loans and helping consumers deal with title loans dating back to 2009. Mr. Bains is an award-winning attorney who manages local firm Sacramento Bankruptcy Lawyer and is ready to use his resources and knowledge to assist you in your personal situation. If you are having issues with Title Loans or any other debt related issues, please call our office at 916-800-7690 to schedule a free consultation with local award-winning bankruptcy attorney Pauldeep Bains.
