Unless you’ve given up television and radio over the last few months, it would be hard to miss the onslaught of commercials from payday and title lenders. Because they have been pushing so hard for business we thought it might be worth taking a moment to examine exactly what a title loan is and how it can possibly affect your life in a pretty dramatic way. Be aware that we are not referencing any particular company in this post – the examples and issues we reference may not be how every company works.
Briefly, a title loan is a loan secured by your vehicle. Most often, the amount loaned will be 20%-50% of the wholesale value of your vehicle. A lot of the attraction of a title loan is the fact that you can generally get a larger loan amount from them than any other lender. Interest rates for the loan will range from 50% – 500% APR, with the average in Missouri typically being 300-400% APR. Most title loans are written with a 30-day repayment or you renew them. You should also be aware that there could be other fees attached to a title loan such as origination fees, vehicle evaluation fees, vehicle disposal fees, paperwork fees, etc.
Ok, here’s where it gets interesting. With a title loan being a secured loan there is little to no risk to the lender that the loan won’t be repaid. If you won’t or can’t repay the loan the lender will take your car or truck and sell it to pay off the loan. With repayment of the loan virtually guaranteed, it might seem unfair that the interest rate should be so high. New and used car loans from dealers typically will have interest rates from 0% -12% APR. Of course, those loans involve reasonably good credit but they’re also secured by the vehicle itself. Rates from 350%-550% are the kinds of rates you see for payday loans with no credit check and no collateral.
Additional points to remember: based on the type of vehicle you have and its condition the amount you can borrow will vary quite a bit. Many title lenders like to loan amounts of $2,000, $3,000, $5,000 or more. If you’re like most of us trying to get by, paying back an amount like $3,000 in 30 days is pretty much impossible. That means renewing the loan and racking up more fees. Some lenders will not only want to hold your title until being repaid but they will also make a set of keys they can hold (makes repossession easier). A growing trend is for title lenders to install a device on your vehicle that can disable the car or truck and make it impossible for you to drive it until payments are brought up to date.
As with any financial decision we advocate getting all the facts and making the decision that’s right for your needs and your budget. Sometimes a title loan might be your best choice or only choice. Just be very careful to make sure you can repay the loan with all the interest and fees. We are always happy to discuss the advantages of our long-term installment loan or any other solution you are considering. Feel free to call (800-892-3006) or stop in to see a manager at any of our 42 Waldo General stores.
*Terms, fees, penalties, etc. will vary by lender. Please review your contract carefully.