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This latest post is from a NYT blog discussing Car Title Loans. Car title loans are short-term loans that are secured by the title of the borrower’s car. If the borrower cannot repay the loan at the end of the term- they are forced to renew. Or lose their car. Either way, they are incurring fee upon fee upon fee. The entire concept of title loans seems predatory to me. First, the loans are typically made based not on the borrower’s credit-worthiness or income, but rather on the value of the car! This seems absurd to me… and a glaring problem, illustrated by the fact that the “average car title borrower renews the loan eight times, paying $2,142 in interest for $951 in credit”. This is an absolutely insane interest rate setting even a decently qualified borrower up for disaster. These ‘short-term’ loans therefore wind up turning into much longer-term loans and wind up being an extremely costly way to borrow money. The problem is that they are being targeted to low-income individuals who may not be qualified for the loan because the loan itself is based on the car’s value not their individual income. On top of that, if a repossession does occur (about one in six loans) a fee is incurred of $350-$400 which, added on top of the already crippling balance, puts the borrower even further in debt. And they have no car.
The report that the blogger talks about suggests more regulation on title loans with guidelines to “include loan terms of at least 90 days, and an annual percentage rate of no more than 36 percent.” No more than 36%? Ouch.
In the not too distant past such loans might have been associated with "the mob". It's a sad state of affairs where a 36% cap would be considered an improvement!
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