Simply put, the best piece of advice someone can exhort with reference to a car title loan is: Do not do it; it's bad news. Car title loans remain a painful vestige from the days of usury and loan-sharking. How does it work? Unlicensed lenders swoop in during times of economic duress, offer you quick cash with seemingly few strings attached (they generally use invisible wire) and without serious thought, you sign over the deed to your automobile.
Why are these loans poor investments? Well, typically, they are underwritten by lenders not exactly on the up and up; I don't mean to generalize, but the fact remains that consumer watchdog groups and local governments work religiously hard to help eliminate this lending practice, or at the very least, force these lenders to register with city councils.
The reason for eschewing what is, basically, a car equity loan is that lenders will disguise rates, charge up to 264% annual interest, and create what is commonly referred to as “balloon payments (when monthly obligations spike extraordinarily during the latter stages of the loan). And herein lies the major problem: car title loans, for the most part, are distributed for the express purpose of foreclosure. Lenders inveigle debtors to pay up front loan fees, force borrowers to pay off interest portions first, and then, as payments begin to balloon out of control, consumers default—losing the collateral, which just so happens to be their car.
Local and state governments combat automobile usury by attempting to set maximum interest rate limits (the City Council of Jacksonville, Florida recently passed legislation limiting interest rates for car equity loans to 18% annually). However, as one could easily guess, there is an immense amount of pressure and lobbying from lenders to junk these much-needed regulations.
The best way to efface these lending practices is to have consumers unequivocally and unilaterally avoid them. This seems, however, to remain a pipe dream since many car owners still resort to trading title for cash with disreputable lenders. And this is the chief problem with usury: it picks on people who need monetary help. If government agencies, credit card companies, or legitimate lenders do not provide the necessary means for economically disadvantaged families to crawl out of debt, unfortunate lending practices will continue to proliferate. Compelling title loan issuers to register with local and state governments is a strong first step to curtailing dangerous lending schemes and scams, as is setting maximum interest rate limits, but aside from discouraging car equity loans, there needs to be alternative avenues for acquiring what many car owners perennially see as needed funds.
In the interim, again, the best possible advice one can issue concerning car title loans is to avoid them without discretion. Not only do these types of loans wind up ruining consumers' credit ratings and costing hundreds of dollars in unavoidable interest payments, ultimately, they end up costing them their car. And, if you just want to lose you car, just give me a call: I'm great at losing things.
By Jean-Pierre Lacrampe