Let’s face it, everything is expensive these days and prices seem to keep going higher. The one thing not keeping up is the average person’s paycheck. Many folks are struggling, or have bad credit and find themselves in a situation where they need some quick cash, so they head over to an auto title loan company. Before you grab your pink slip, put on the brakes and learn a bit more about what you’re getting yourself into.
Auto title loans or pink slip loans are high-cost loans used to cover a cash-flow shortage. Borrowers use their car truck or motorcycle as collateral, and the lender holds their title in exchange for a monetary loan amount. If the loan is repaid, the title is returned to the borrower. If the loan is not repaid, your car will be repossessed and can be sold. The Georgia auto title loan industry averages $3.6 billion per year in profits, making it a very lucrative business. The average amount of a title loan is about $700 and the typical monthly percentage rate is 25% or an APR of 300%. Georgia is one of only twenty states that allows single payment auto title loans, whereby, a borrower agrees to pay the full amount owed in a lump sum plus interest and fees by a certain day. Essentially, auto title loans are treated as pawn transactions in the state of Georgia. Many states do not allow auto title loans as they deem them to be predatory loans.
In recent years studies have been done and auto title loans have been found to have similar issues as payday loans. Many consumers cannot repay their loans and are forced to renew their existing contracts, which can create long-term debt traps. A borrower who cannot repay the initial loan by the due date must re-borrow or risk losing their vehicle. Such re-borrowing can trigger high costs in fees and interest and result in other collateral damage to a consumer’s life and finances.
The Consumer Financial Protection Bureau did an in-depth study on auto title loans and their effects on borrowers, here is what they found.
One-in-five borrowers have their vehicle seized by the lender: Single-payment auto title loans have a high rate of default, and one-in-five borrowers have their car or truck seized or
repossessed by the lender for failure to repay. This may occur if they cannot repay the loan in full either in a single payment or after taking out repeated loans
Four-in-five auto title loans are not repaid in a single payment: Auto title loans are marketed as single-payment loans, but most borrowers take out more loans to repay their initial debt. More than four-in-five auto title loans are renewed the day they are due because borrowers cannot afford to pay them off with a single payment. In only about 12 percent of cases do borrowers manage to be one-and-done – paying back their loan, fees, and interest with a single payment without quickly re-borrowing.
More than half of auto title loans become long-term debt burdens: In more than half of instances, borrowers take out four or more consecutive loans. This repeated re-borrowing quickly adds additional fees and interest to the original amount owed. What starts out as a short-term, emergency loan turns into an unaffordable, long-term debt load for an already struggling consumer.
Borrowers stuck in debt for seven months or more supply two-thirds of title loan business: Single-payment title lenders rely on borrowers taking out repeated loans to generate high-fee income. More than two-thirds of title loan business is generated by consumers who re-borrow six or more times. In contrast, loans paid in full in a single payment without re-borrowing make up less than 20 percent of a lender’s overall business.
Before you enter the vicious cycle of auto title loans, look into other sources for a short term loan; such as a Credit Union, Credit Card, friends or family. If none of those options work, take out a loan for the absolute smallest amount possible, you’ll be glad that you did.
Sources
http://www.drive-safely.net/title-loans-in-georgia/
https://www.consumer.ftc.gov/articles/0514-car-title-loans
The information found on the Gerstenberger Law site is for educational purposes only. Your situation and the situation of others is unique and more complex. This is neither legal advice nor to be considered legal advice. Contact us for advice about your specific situation
