Title Loans on Automobiles – a Very Bad Idea
Robert Menard
Certified Purchasing Professional,
Certified Professional Purchasing Consultant, Certified Green Purchasing Professional, Certified Professional Purchasing Manager
Readers may recall a blog post in August 2014 that referred to the dangers and borderline illegal practices of subprime auto loans by Jessica Silver-Greenberg and Michael Corkery of the New Your Times. They are at it again, shedding light on the sleazy title loan world in their collaborative story “The title loan conundrum”.
These title loans usually come with usurious interest rates, so high in many cases, that the borrower never gets out of quicksand of debt. The story mentions a woman who needed $1,000 to cover debts so took an auto title loan. Two years later, she was $992.78 in debt and her vehicle was repossessed for non-payment. Due to the 171% annual interest rate, she still owed virtually the entire amount and had lost her car.
A NY Times investigative study found that interest rates ranged between 80% and 500% including fees. When customers are unable to pay off the debt on time, a new round of fees is triggered as the debt is refinanced. Another study reported in the story was done by the Center for Responsible Lending in Durham, NC. It found that 1 of every 6 title loan borrowers will have their vehicles repossessed.
The moral of the story
The sad tales related in this story testify the sinister underbelly of commerce, organizations preying on the vulnerable and under educated. What is worse, the victims are almost exclusively economically disadvantaged. While some states are cracking down on title loans (and pay day loans as well) we all have an obligation to protect ourselves.
Learn about your personal credit and how to buy and finance cars. Be a responsible buyer so you do not depend on feckless well-meaning but generally incompetent bureaucrats to protect us.