5 Need-to-Know About Title Loans

Facts You Need To Know About Title Loans

If you’ve ever tried to sell your car, you may have had that dark moment when you realize how much your vehicle is actually worth. (Spoiler alert: it’s way less than you might have thought!) But even if your ’92 Geo Prism with the sweet hatchback isn’t exactly a goldmine, you could still use that car to get a pretty sizeable loan if you’re strapped for cash.

This is a major part of why car title loans seem so appealing: In exchange for handing over your car title as collateral, you can get a loan regardless of your credit score. Sounds like a great deal!

Only it’s not a great deal. In fact, it’s a terrible, “how is this even legal?” kind of deal. If you’re thinking about taking out a title loan to cover either emergency expenses or just everyday costs, these five surprising facts will make you want to steer clear!

1. Title Loans are banned in 25 states

That’s half the country, folks. Due to their short terms, lump sum repayments and high Annual Percentage Rates (APRs), title lenders are only able to operate in a handful of states.[1] And many of these states take a, shall we say, lax approach towards regulating these predatory lenders. This makes taking out a loan from one even more dangerous. So if you’re thinking about a title loan, consider that 50 percent of states have said “thanks, but no thanks” to title lenders.

2. Title Loans have an average APR of 300%

A loan’s Annual Percentage Rate, or APR, measures how much that loan would cost the borrower if it were outstanding for a full year. And with an average APR of 300 percent, your typical title loan would cost three times what you originally borrowed in fees and interest alone. Technically, these loans are only a month long, with a 25 percent monthly interest rate, but lots of people can’t afford that. Since they can’t pay their loan back on time, they keep rolling the loan over, scoring another month in exchange for an additional 25 percent (read more in Title Loans: Risk, Rollover, and Repo). Before you know it, one month has turned in 12, and that 300 percent APR is now a reality!

3. Sometimes, a “Title Loan” isn’t actually a Title Loan

Cases like these have been reported in states like Missouri[2] and Virginia, both of which allow title loans. Customers took out what they thought was a title loan, but was actually something far different. These loans can come with different names, like “consumer installment loan” or “consumer finance loan” but they come with even less regulations than title loans. They can be structured to last much longer than a conventional title loan with potentially unlimited interest.[3] Offering loans under a different statute is a classic trick by predatory lenders to skirt around state lending regulations. Don’t fall for it.

4. Over 80% of Title Loans are the result of refinancing

The majority of title loans may be short-term loans, but that doesn’t mean that lenders intend them for short-term use. According to a study published by the Consumer Financial Protection Bureau (CFPB) in May, 2016, over 80 percent of title loans are the result rollover.[4] What does that mean? It means that the title loan industry doesn’t just profit from their customers’ inability to afford their loans, they depend on it. Short-term title loans aren’t designed to be paid off in a series of small, manageable payments: They are meant to be repaid in a single lump sum. Many customers can’t afford to pay their loan off all at once, meaning they have to refinance the loan just to keep from defaulting and losing their vehicle. Speaking of which …

5. 1 in 5 Title Loan customers loses their car

When a customer cannot pay their title loan back, the lender gets to repossess their vehicle. And according to that same study from the CFPB, this is exactly what happens to one out of every five title loan customers. That’s 20 percent. If someone told you that a loan came with a 20 percent chance of losing your car, would you still sign the agreement? Heck no, you wouldn’t!

If you need a loan and need it fast, don’t fall for the promises of a predatory title lender. Choose a personal installment loan from OppLoans instead. We’re a socially responsible lender, and we believe that people deserve better than a payday or title loan. Our personal installment loans come with lower rates, longer terms, and a series of easy, manageable payments. Plus, if you are approved for a loan, we can have the funds in your checking account as early as the next business day. To learn more, or to apply for a loan today, check out our homepage: www.OppLoans.com.

References:

  1. Bourke, N., Horowitz, A., Karpekina, O., Kravitz, G., Roche, T. “Auto Title Loans: Market practices and borrowers’ experiences.” Retrieved September 12, 2016, from http://www.pewtrusts.org/~/media/assets/2015/03/autotitleloansreport.pdf?la=en
  2. Moskop, W. “TitleMax is thriving in Missouri — and repossessing thousands of cars in the process.” Retrieved September 12 from http://www.stltoday.com/business/local/titlemax-is-thriving-in-missouri-and-repossessing-thousands-of-cars/article_d8ea72b3-f687-5be4-8172-9d537ac94123.html
  3. Pope, M. “The Fast-Cash World of Virginia Car-Title Lenders.” Retrieved September 12, 2016, from http://wamu.org/news/15/10/05/inside_the_fast_cash_world_of_virginia_car_title_lenders
  4. “Single-Payment Vehicle Title Lending.” Retrieved September 12, 2016, from  http://files.consumerfinance.gov/f/documents/201605_cfpb_single-payment-vehicle-title-lending.pdf

OppLoans Word of the Week: Repossession

Word of the Week- Repossession

Different types of loans come with different advantages, but they also come with different risks. And in the case of car title loans, they’re pretty much all risk. But if you’re looking for just one reason to steer clear of title loans, the threat of repossession should be enough. (Don’t get us wrong, there are so many reasons to avoid title loans. It’s hard to pick just one.) On average, one out of five title loan customers end up having their car repossessed.[1]

What is Repossession?

Repossession is most commonly associated with car loans, but really it can apply to any loan that’s secured by collateral. If a borrower defaults on their loan, the lender has a legal right to seize—or repossess—the borrower’s collateral. (The definition of “default” is going to vary depending on the terms of the loan agreement, but it’s basically a fancy word for “failing to pay the loan back.”) When a lender repossesses a borrower’s collateral,  they usually do so with the intent of selling it in order to make up their losses on the loan.

How does Repossession work?

With a car title or standard auto loan, the borrower’s collateral is their car, truck, SUV or motorcycle. Once the repossession process has begun, the lender might send someone with a tow truck or a spare set of keys to take the vehicle.

With a home mortgage, the borrower’s collateral is their house, and the repossession process is referred to as “foreclosure.” Foreclosure generally occurs once a person is at least four months behind on their mortgage payments. While the process varies state-by-state, it usually involves the lender giving the borrower ample public notice to leave the property.[2]

With a pawn shop loan, repossession is actually not necessary, because the borrower hands over their collateral to the lender before receiving the loan. They get their property back only once the loan is paid off.

What are my rights during Repossession?

This depends on where you live; different states have different laws that govern exactly what lenders can and cannot do during the repossession process. Generally, they cannot commit a “breach of the peace,” which includes verbal and physical threats, trespassing, and acts of violence.

Are there alternatives to Title Loans?

Absolutely there are. If you need a loan and don’t want to risk losing your car, house, or property, consider looking for an unsecured personal loan. Installment loans are loans that are paid back over time, rather than in a single lump sum. You’ll get a longer time to repay the principal (the amount you borrowed), and you’re not going to lose your car in the meantime.

But, as always, you’ll want to do your homework before taking out any loan. Avoid all payday loans: They won’t take your car but they’re just as predatory as title lenders.

Look instead to safe, Better Business Bureau-accredited lenders like OppLoans. With OppLoans, you’re in no danger of losing your car. Instead, you’ll get a lower rate and longer term installment loan that’s structured to help you now and make it easy to repay in the future.

You can read more about Repossession in our Financial Terms Glossary.

Last week’s entry: Rollover

Previous entries:

Annual Percentage Rate

References:

  1. Single-Payment Vehicle Title Lending. (2016, May). Retrieved from http://files.consumerfinance.gov/f/documents/201605_cfpb_single-payment-vehicle-title-lending.pdf
  2. “How does foreclosure work?” Consumer Financial Protection Bureau: Ask CFPB. Retrieved from http://www.consumerfinance.gov/askcfpb/287/how-does-foreclosure-work.html

Have Bad Credit and Need a Personal Loan? Let’s Play the Bad Credit Lender Dating Game!

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If you’re shopping around for a bad credit loan, it can be hard to know which loan is right for you. Really, it’s a lot like online dating. For one thing, just like there are a lot of sketchy people lurking online, there are also a lot of shady lenders out there looking to get matched up with inexperienced borrowers. But even among the honest and responsible lenders, how can you know which is really right for you?

Before we get to our most eligible options, here are some bad credit personal lenders that practice predatory behavior. You really can’t swipe left fast enough when you’re dealing with:

Payday Lenders

These lenders offer short-term, fast cash loans that only average around 14 days. That quick turnaround might sound nice but, in reality, these loans are pretty nasty. They have extremely high interest rates, with an average Annual Percentage Rate (APR) of 339 percent.[1] Payday loans are also structured to be paid back in a single lump sum, which is difficult for many borrowers. A lot of payday borrowers end up rolling their loans over again, trapping themselves into a continuous cycle of debt. It’s a bad relationship they just can’t get out of!

Title Lenders

Take everything we just said about payday lenders and add losing your car: That’s title loans. These are month-to-month, short-term loans with an average interest rate of 25 percent that adds up to an APR of 300 percent. Since these loans are secured by the borrower’s car title, you can usually borrow more with a title loan than you can with a payday loan. However, it also means that the lender can repossess your vehicle if you can’t pay the loan back. In fact, one out of every five title loan customers eventually has their car repossessed.[2] Imagine if you had to give someone your car in order to break up with them. That’s a person you should avoid!

Okay, now that we’ve got the bad eggs out of the way, here’s a few types of bad credit personal lenders that you can swipe right on and see where things take you:

Personal Installment Lenders

These lenders offer long-term installment loans, which usually have a minimum term of six months and are designed to be repaid in a series of equal, regularly scheduled payments. Their loans are also amortizing, which means that every payment you make goes towards both the principal loan amount and the interest. Dating them would be a calm, loving series of Netflix binges, home-cooked meals, and weekend antiquing. OppLoans is a personal installment lender, and our interest rates are 70 to 125 percent lower than your typical payday lender. That last part isn’t true of all installment lenders by the way. If you’re taking out an installment loan, you’ll still want to do your research.

Credit Unions

These lenders work a lot like traditional banks, only they are not-for-profit, member-owned organizations. Credit unions also have different requirements for membership than banks do. Being eligible for membership could depend on where you work or live, or even where you go to church. Credit unions that belong to the National Credit Union Administration (NCUA) offer Payday Alternative Loans. These loans have principals between $200 and $1000, terms that are one to six months long,[3] and interest rates that are capped at 28 percent.[4] That could be a great deal! However, you have to be a member for one month before you qualify for one of these loans. They’re a great date, but they’re picky.

Charities and Community Organizations

If you have bad credit and need a small cash loan, you might be able to get one from a local charity in your area. Many of these organizations have small-dollar lending programs with reasonable rates that are aimed at combating predatory payday lending in small communities. Some even offer credit-counseling services, which can help you build a budget, practice better financial habits, and improve your credit score over time. They help you grow and make more responsible decisions—like any good partner should.

We all know people sometimes need a financial partner. So skip the predators and go with a reliable, honest, financial institution that has your best interest at heart!

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN | Google+

References:

  1. “Payday Loans and Deposit Advance Products.” Retrieved September 6 from http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf.
  2. Pascual, K. “1 In 5 Auto Title Loans End In Car Repossession: CFPB Study.” Retrieved September 6, 2016, from http://www.techtimes.com/articles/159308/20160518/1-in-5-auto-title-loans-end-in-car-repossession-cfpb-study.htm
  3. Payday Loan Alternatives. MyCreditUnion.Gov. Retrieved September 1, 2016, from http://www.mycreditunion.gov/what-credit-unions-can-do/Pages/payday-loan-alternatives.aspx
  4. Aho, K. “Payday Loans: How They Work, What They Cost.” Retrieved September 1, 2016, from https://www.nerdwallet.com/blog/loans/payday-loan-alternatives-dodge-debt-trap/

Showdown at Title Loan Corral

Showdown (1)

Why the Lone Star State is the wild wild west of car title lending…

You’ve probably heard about the dangers of predatory title loans. High interest rates, short repayment terms, and additional fees put these loan products at the bottom of the personal lending barrel. However, there are many people out there who have bad credit and do not qualify for a traditional personal loan. And for folks with bad credit who need a loan in Texas, their experience with an auto title loan could be especially rough.

Title Loan Basics

Title loans are a kind of short-term loan that uses the title to your car, truck, or motorcycle as collateral. In return for your car title, the lender issues you a cash loan based on a fraction of your vehicle’s value. Once you’ve repaid the title loan, you get your title back. Easy enough, right?

But the devil is in the details. Repaying a title loan becomes difficult when you’re saddled with an average Annual Percentage Rate (APR) of 300 percent–that’s 25 percent per month–and you only have 30 days to pay the loan off in full plus fees and interest.[1] Oh, and using your car title as collateral means that the lender can repossess your vehicle if you don’t (or can’t) pay.

Where the Repo Men Roam…

And in Texas, it’s even worse. Due to a lack of rules and regulations to oversee these dangerous and predatory loans, Texas really is the wild, wild west of title lending…

While the actual law in Texas caps title loan interest rates at 10 percent, lenders in the Lone Star State are exploiting loopholes to take advantage of people in need.[2] These sneaky tactics allow them to charge unchecked interest rates and additional fees, with some Texas car title loans sporting an APR of 500 percent.

And guess what? Lots borrowers can’t afford that. Within the first three-quarters of 2014, payday and title lenders repossessed over 32,100 vehicles from Texas residents.[3]

To get the full story, check out our article: Texas: The Wild West of Auto Title Lending.

If you have bad credit and are looking for a fast cash loan, take our advice and avoid a showdown with an auto title lender. Borrow money from a family member or friend, ask your employer for an advance, or contact OppLoans for a safer, more affordable loan. Our interest rates are lower, our repayment terms are longer, and your vehicle won’t be on the line.

References:

  1. Cafiero Giusti, Autumn. “The consumer perils of a car title loan.” BankRate.com. October 29, 2013. Accessed May 26, 2016. https://www.bankrate.com/finance/auto/consumer-perils-car-title-loan.aspx.
  2. “Car-Title Loan Regulation.” ConsumerFed.org. December, 2012. Accessed May 26, 2016. https://www.consumerfed.org/pdfs/Resources.CTL.StateLawTermChart12.2.12.pdf.
  3. FAQs” Texas Fair Lending Alliance. 2013. Accessed May 26, 2016. https://www.texasfairlending.org/resources/faqs/.

Steering Clear of Title Loans (3 of 3): What to do if You’re Already Trapped

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Any risky venture can always take a turn for the worse. If you go camping, you might get lost. If you go hang gliding, you might wind up stuck in a tree. If you enter a demolition derby, you might end up totaling your car – actually, you’ll definitely end up totaling your car. If you care about your car, there are two things you should never do: enter a demolition derby and take out a title loan.

If you’ve already taken out that title loan, though, you may feel like it’s too late. Maybe you’re behind on payments and you’re worried that you won’t ever be able to repay the loan. You might be on the verge of losing your car. But don’t worry, you still have options.

Option 1: Pay what you owe as soon as you can

These predatory loans typically have extremely high interest rates that build up the longer you take to pay them off. In some states, borrowers are allowed to rollover their loans, meaning they can extend the due date for an additional fee. But a lot of states have outlawed this practice as it leads to borrowers sinking deeper and deeper into debt. So if you have the funds, pay sooner rather than later.

Option 2: Cancel or Modify the Loan

“Woah, woah, woah. I can cancel my loan?” Well, maybe. Many secured loans contain grace periods. If you’re within this grace period, you may be able to cancel the loan—the problem is that grace period is usually only 3 days from the date the loan was taken out. So if it’s not too late, you’ll need to do this immediately.

Loan Modification is different. If you can show that your car is worth much less than what you owe you’re lender, you may be able to broker a compromise with your lender. The laws that mandate this are different state by state, so you’ll have to do your research before you try this method.1

Option 3: Get outside counsel

Check your loan’s paperwork and make sure you know all of the terms. Don’t rely on a predatory title lender to tell you what your rights are, read the paperwork for yourself. They may not be telling you the truth about every detail, and even keeping your options from you.

Also, consider contacting a credit counselor. Not-for-profit credit counselors can be found at www.nfcc.org and elsewhere; they can help you restructure your debt and potentially negotiate with your lender. They’ll also advise you going forward on how to repair or minimize the damage done by predatory lenders. Learn more about picking a credit counselor in the blog Bad Credit Helper: How To Shop for a Credit Counselor.

If you need a better loan that won’t risk your ride, consider a personal installment loan from OppLoans. We offer loans from $1,000-$5,000 with interest rates that are 70-125% lower than other personal lenders. You can apply at OppLoans.com and if you’re approved you can receive your money as soon as the next business day. We offer fast, safe loans that can help build your credit.

You won’t have to put your car on the line to take out one of our loans, so you can use your ride to enter a demolition derby instead! Or don’t. Actually definitely don’t, just use your car to drive to work and go on road trips and stuff. Stay away from demolition derbies all together. And stay away from title loans too.

References:

1. Lacoma, Tyler. “What to do when You’re Stuck in a Predatory Title Loan.” Ehow.com. https://www.ehow.com/info_8568423_do-stuck-predatory-title-loan.html Accessed 5.6.16

Blog Series: Steering Clear of Title Loans
Part 1: Three Must-Know Facts
Part 2: Don’t Risk Your Ride
Part 3: What to do if You’re Already Trapped

Steering Clear of Title Loans (2 of 3): Don’t Risk Your Ride

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Are you a risk-taker? You may skydive, ski the side of a volcano, or run with the bulls in Pamplona while blindfolded for fun, but there’s one risk that’s never worth taking. Car Title Loans aren’t just risky, their flat-out wrong. Check out the top 3 Risks of title loans and steer clear of these dangers.

Risk 1: Owing more than you can afford

There are socially-responsible lenders out there, but they never offer title loans (sometimes called Car Equity Loans). Car title loan sharks are predatory lenders who prey on those in need. They succeed by trapping borrowers in loans with unfairly high interest rates.

Car Title Loan interest rates are higher than credit cards, personal installment loans and most other forms of borrowing. The median Car Title Loan amount is $951, and the median car value is $3,150.[1] While the average interest rate is 25% on your loan, that equals a stunning 300% APR (compare that to 15% average credit card interest[2]). Borrowers wind up at risk of paying the value of their loan multiple times over.

Risk 2: Rollover (and over, and over, and over)

So the debt trap has been sprung. You took out the loan, now you can’t repay the principal, the interest and all of the extra fees. What happens next? Before the lender takes your car, they’ll offer you what’s called “rollover.” This is basically an offer to extend the term of your loan for another period (two weeks or a month)—at the cost of additional fees and interest.

Rollover seems like a quick fix but it actually just makes the problem much worse, here’s how: Rollover compounds the problem because now you owe more to the lender on top of what you couldn’t afford to repay in the first place. It can become impossible to pay the mounting debt, in which case you’ll find yourself…

Risk 3: Losing your car!

This is the worst case scenario for the borrower, but it’s actually the lender’s intended outcome. Nationally, 11% of borrowers lose their cars to car title lenders. In New Mexico, the number is a frightening 60%.

Lenders want your loans to fail. How can you tell? Many will install GPS tracking devices or starter interrupt devices on the cars that secure these loans. When they do “repossess” the car, they’ll sell it to recoup their losses. Some states mandate that the lender return the cash difference between the debt principal and the sale price of the car to the borrower, but other states don’t. So imagine taking your original financial crunch (a surprise medical bill, a home repair, etc.) and now making it infinitely worse because you owe many times the value of your car to a title lender, and then to top it off, you even lose your vehicle (read more in Title Loans: Risk, Rollover, and Repo)!

If you need fast cash in an emergency, you don’t have to resort to a title loan. There are better alternatives. A personal installment loan from OppLoans comes with a fixed interest rate that’s 70-125% lower than other personal lenders. And if you’re approved, you can receive your cash loan as soon as the next business day. Skip the risk of a title loan and make a safe decision with OppLoans.

References:

[1] Giusti Cafiero, Autumn. “The Consumer Perils of a Car Title Loan.” Bankrate.com. https://www.bankrate.com/finance/auto/consumer-perils-car-title-loan.aspx. Accessed 5.6.16.

[2] “Car Title Loans” Consumer.ftc.gov. https://www.consumer.ftc.gov/articles/0514-car-title-loans Accessed 5.6.16.

Blog Series: Steering Clear of Title Loans
Part 1: Three Must-Know Facts
Part 2: Don’t Risk Your Ride
Part 3: What to do if You’re Already Trapped

Steering Clear of Title Loans (1 of 3): Three Must-Know Facts

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Title Loans are a real clunker of a deal. Here are the facts you should know before risking your ride.

If you’ve driven through any dicey area, you’ve seen the Car Title Lender’s storefronts. These are the shops offering “Fast Cash” and “Kwik Money Today!” If you’re in a jam, it can seem appealing to walk into a store, sign some papers, and walk out with money in your pocket. But what’s the real cost?

Let’s break it down with the 3 Must-Know Facts about Car Title Loans.

Fact 1: They’re predatory

What is a Car Title loan in the first place? It works likes this: A borrower takes out a short term, small dollar loan from a title lender in exchange for signing over the title to their car (or boat, or motorcycle, or hot air balloon, any vehicle with value). The loan itself comes with an extremely high-interest rate (usually around 300% APR!).1

With interest rates like that, the loans are designed to be difficult to repay. That’s called predatory lending. It means that the lender has effectively sold you on a loan you can’t afford, trapping borrowers in debt cycles, and then ultimately being able to take (or “repossess”) the borrower’s car. These lenders aren’t out to give borrowers a financial boost, they’re out to boost your car!

Fact 2: They short you on the value of your vehicle

In a Car Title Loan transaction, you are using your vehicle as collateral. Essentially, you’re securing the loan for the lender by empowering them to take your car if you fail to repay (which is what they want, of course). The lender says the loan is based on the value of your car, but that’s almost never the case. A typical car title loan is for only 40-60% of the value of your vehicle.2

So now the borrower isn’t getting a loan for the full value of their car, but rather a small dollar loan attached to a grossly inflated interest rate and set of additional fees. Read more in Title Loans: Risk, Rollover, and Repo.

Fact 3: Those short terms and high interest rates are by design

The average Car Title Loan is for a period of only 30 days. When you’re in a financial emergency, it can seem like a good short term solution, but the truth is that the consequences are often far worse than if you had skipped the loan in the first place.

Yes, interest rates are high to begin with, but many title lenders charge you a flat fee just to use their “service”. This destructive combination of short terms, high interest, and arbitrary fees, means that you’re very likely to pay the value of the loan many times over, lose your car, or both.3 Read more in 5 Need-to-Know About Title Loans

Car Title Loans are dangerous and predatory but the good news is that they are totally avoidable. Keep your finances (and car) safe by driving past these dangerous, predatory lenders.

A safe alternative to Car Title Loans are personal installment loans from OppLoans. We offer fixed interest loans that range from $1,000-$4,000 and have repayment periods of 6-36 months. We offer better personal loans and top notch customer service – our customers rate us 5 out of 5 stars. Click below to get started today.

References

1. “5 Shocking Facts About Car Title Loans” Cheatsheet.com. https://www.cheatsheet.com/personal-finance/5-shocking-facts-about-car-title-loans.html/?a=viewall Accessed 3.1.2016
2. “Be Aware of a Cash Loan for Your Car Title: 5 Facts for Avoiding a Bad Loan.” Carsdirect.com. https://www.carsdirect.com/auto-loans/be-aware-of-a-cash-loan-for-your-car-title-5-facts-for-avoiding-a-bad-loan Accessed 3.1.16
3. “Car Title Loans” About.com https://banking.about.com/od/loans/a/cartitleloans.htm Accessed 5.6.2016

Blog Series: Steering Clear of Title Loans
Part 1: Three Must-Know Facts
Part 2: Don’t Risk Your Ride
Part 3: What to do if You’re Already Trapped