5 States Where People Need to Watch Out for Predatory Title Loans
Title loans are illegal in many states, but where they are allowed they can all too easily trap borrowers into a predatory cycle of high-interest debt.
When it comes to taking out a bad credit loan or no credit check loan, your options are going to depend on where you live. These small-dollar loan products are regulated at the state level—with municipal governments occasionally adding their own regulations on top!
One of the riskiest kinds of no credit check loans, one that you should probably avoid, is title loans.
These loans are secured by the title to your car or truck, which means that failing to pay the loan back will almost certainly result in your vehicle being repossessed! Title loans also come with ludicrously high interest rates, which can leave borrowers stuck between a rock and a hard place.
But that’s why we’re here! We did some digging to find the areas in the U.S. where predatory title lenders tend to thrive. And if you live in one of these five states, make sure you do everything you can to avoid taking out a risky, expensive title loan. They’re just not worth it!
Alabama is quite the hunting ground for predatory car title lenders. With no restrictions on maximum loan limits and annual percentage rates (APRs) as high as 300%, it’s a place where they can make a lot of money. By one estimate, Alabama title lenders rake in over $356 million per year in fees.
Maybe this is why Alabama has more title loan locations than any other state in the union. With a total of 627 locations, there is one title loan issued in Alabama for every 5,427 residents. Even in other states where predatory title lending runs rampant, you won’t see numbers like that.
Title lenders in Alabama are classified as pawnbrokers, which means that their loans are subject to the state’s Pawn Shop Act. As such, title loans are made for an initial 30-day term with a maximum interest rate of 25%.
If the lender doesn’t receive payment within that 30-day period, another 30-day redemption period begins. Customers are faced with paying an additional interest fee to roll over the loan or have their car repossessed and sold to pay their debt. According to the Consumer Financial Protection Bureau (CFPB), one in five title loan borrowers has their vehicle repossessed.
Lastly, Alabama is one of the two states in the whole country (the other being Georgia) where lenders are allowed to keep all the proceeds from the sale of a repossessed vehicle. So if the vehicle being sold nets more than the borrower owed on their loan, they’re out of luck. To learn more about predatory lending in the state, check out our subprime report on payday and title lending in Alabama.
There may not be nearly as many title loan locations in Mississippi as there are in neighboring Alabama (355 storefronts to 672), but Mississippi title lenders still seem to do pretty well for themselves to the tune of over $297 million in fees per year.
Title lending in Mississippi was greatly expanded in 2016 when the Mississippi Senate passed a bill allowing payday lenders and check cashing stores to offer car title loans as well. According to data from the Center for Responsible Lending and the Consumer Federation of America, there are 73,867 title loans issued annually in the state, which comes out to 208 loans per location.
In the state of Mississippi, title loans are regulated under the Title Pledge Act, which sets a maximum loan amount of $2,500 and a maximum interest rate of 25% month—a rate comes out to 300% over the course of a full year.
Under the Title Pledge Act, title loans in Mississippi are issued with a 30-day repayment term, and the borrower can renew their loan term (i.e. get another 30 days to pay the loan back plus additional interest) if they pay 10% of the principal.
That fee structure is one of the only positive things you’ll find regarding title loans in this state. Customers can still end up paying way more towards interest than the amount they originally borrowed, but requiring that these renewals go towards the principal loan amount helps slow the predatory debt cycle—if only a little bit.
The Center for Responsible Lending has also named Mississippi as one of the five states that together account for almost half of payday loan and title loan fees charged nationwide. In total, over $526 million in payday and title fees is drained from Mississippi borrowers annually.
When you consider how many fewer people live in Mississippi compared to the other four states on that list—Texas, California, Illinois, and Ohio—the scope of the problem becomes clear. If you want to learn more about payday lending in Mississippi, check out our report on the state’s subprime lending industry.
Title loans in Georgia are a little more complicated than similar loans in Mississippi or Alabama. While title lenders in the state can charge a 25% monthly interest rate on their loan products, they can only do so for the first three months that the loan is outstanding.
While Georgia title loans come with 30-day repayment terms, those terms can also be extended beyond that initial time frame. After three months, the monthly interest rate that title lenders can charge is cut in half, with a maximum charge of 12.5% per month. This means that title loans in Georgia come with a maximum APR of 187.5%.
That’s much lower than the 300% APRs you’ll find on title loans in Alabama and Mississippi, but it still means that a borrower who took out a $1,000 title loan on their car would end up paying $1,875 in interest charges alone if they rolled it over for a full year.
Plus, there is still the threat of repossession. While title lenders in Georgia have to observe a 30-day grace period between when they repossess a vehicle during which the outstanding balance can be repaid, they still don’t have to share any proceeds with the original owner that exceed the amount owed. Oh, and they can also charge you a $250 fee for repossessing your vehicle.
You can find out more in our Georgia subprime report.
On the surface, title loans in Texas don’t seem to be that bad, as title lenders in the state are limited to a 10% monthly interest rate. While that works out to an APR of 120%, which is extremely high—especially for a loan that’s secured by collateral—it’s still a great deal less than the maximum APRs for title loans we talked about above.
But there’s a loophole. While Texas auto title lenders have to observe a 10% cap on monthly interest, there are no caps to the amount of money they can charge in additional fees. This is why some title loans in the state have APRs as high as 1,000%!
According to the Texas Fair Lending Alliance, there are no restrictions on how many times a Texas title loan can be rolled over (i.e. extended). However, a number of municipalities have moved to restrict or regulate title lending at the local level, including limiting the number of rollovers.
Title loans drain over $432 million in fees from Texas borrowers every year. By exploiting multiple loopholes, these lenders have turned Texas into one of the largest title lending states in the entire nation. It really is the wild west of predatory lending.
If you want to read more about payday and title lending in Texas, check out our subprime report for the state.
Technically, Virginia shouldn’t be on this list. Not because title lending isn’t a major problem there, but because it isn’t actually a state—it’s a commonwealth. Still, we guess we can make an exception.
Like Georgia, Virginia title lenders have to abide by a sliding scale when it comes to charging interest. But whereas the Georgia scale is based on the length of time during which the loan is outstanding, Virginia’s is based on the amount that’s being borrowed.
Title loans under $700 come with a maximum monthly interest charge of 22% while loans between $701 and $1,400 have a maximum monthly charge of 18%. And for title loans in Virginia with principals above $1,400, lenders can’t charge more than 15% a month.
While this a small bit of a progress, it still means that title loans in Virginia come with APRs between 180 and 264%! And with a minimum loan term of four months—with a maximum term of a year—this means that even the lowest rates really add up.
A Virginian who borrowed $1,500 through a title loan would pay $900 in interest over four months and $2,700 over the course of a full year. Meanwhile, a Virginian who took out a $500 title loan would pay a minimum of $440 in interest and a maximum of $1,320!
With rates like that, it’s no surprise that these title loans can easily trap borrowers into a predatory cycle of debt, leaving them with the hard choice between forking over hundreds (or even thousands) of dollars in interest or having their vehicle repossessed.
Check out our subprime report to find out more about payday and title lending in the state—sorry, “commonwealth”—of Virginia. And if you’re still curious about how title lending stacks up in other areas of the country, we suggest you also read our subprime reports for high-volume title lending states like Illinois, California, and Ohio.
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