Financial emergencies happen in life. And quick cash is needed. Before signing the dotted line, put your car in park and think about the practices of predatory lenders. Are you willing to throw money down the rabbit hole if you default on the loan? What will you do if your auto is legally repossessed? How will you travel to work?
What is an Auto Title Loan?
A car title loan is a small, short-term, high-rate loan that uses the clear title on your vehicle as collateral. The amount you can borrow is based on the value of your car or the equity you have in the vehicle.
“The Federal Trade Commission (FTC), the nation’s consumer protection agency, advises you to put on the brakes and understand the costs of a car title loan. You may want to consider other options. A car title loan will put your car at risk: you may lose one of your most valuable possessions and your transportation.” www.consumer.ftc.gov/articles/0514-car-title-loans.
According to a joint study by the Consumer Federation of America and the Center for Responsible Lending, the average consumer takes out a car-title loan for $951 and renews the loan eight times. With the annual percentage rate (APR) about 300 percent, consumers end up paying about $2,142 in interest alone. One out of six loans end in repossession of a car, which has an additional fee, typically between $350 and $400. When loans end in repossession, not only do consumers have high debt, they also have lost their cars.
“Just like their cousins — payday loans — car title loans impose triple-digit annual interest rates on consumers. And when you combine very high rates with very short repayment periods, it’s a recipe for financial disaster. Borrowers who can’t repay the entire loan on time typically wind up rolling these loans over month after month, incurring additional “rollover” fees and interest,” according to an article on the AARP website. www.aarp.org/.
Interest rates and fees
The typical borrower often pays more than a 300 percent annual percentage rate, according to a joint study by the Center for Responsible Lending and the Consumer Federation of America.
In addition to high interest, car title loans usually include a number of fees: processing fees, document fees, late fees, origination fees, and lien fees. I’m surprised there’s not a fee for putting a fee on the multiple fees!
Car Title Loans in Ohio
Ohio has more than 830 storefronts that offer payday or car title loans, according to a report by the Center for Responsible Lending.
U.S. Senator Sherrod Brown (D-Ohio), the ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, called predatory payday loans and car title loans an “epidemic” that cost Ohioans more than $500 million in fees each year per a 2016 article at Cleveland.com.
According to a 2012 article in the Dayton Daily News, auto title lenders sidestepped the strict limits imposed by the Short Term Loan Act by licensing their businesses under the Second Mortgage Loan Act or the Credit Services Organization Act. Both laws permitted fees on top of whatever interest rate is charged.
Recently, changes have been applied to the Ohio Small Dollar Loan Act and the Second Mortgage Loan Act, but not to the Ohio Consumer Installment Loan. www.responsiblelending.org/.
The Ohio Poverty Law Center is a nonprofit law office advocating for policies to protect and expand the legal rights of low-income Ohioans. www.ohiopovertylawcenter.org/.
If you believe you have been treated unfairly in a consumer transaction, file a complaint with the Ohio Attorney General’s Office at www.OhioAttorneyGeneral.gov or 800-282-0515.
The bottom line: Don’t take a change on using and losing your automobile as collateral for a predatory car title loan.
Reach:Melissa Martin, Ph.D, is an author, columnist, educator, and therapist. She lives in Scioto County. www.melissamartinchildrensauthor.com. Contact her at firstname.lastname@example.org.