How to Protect Yourself: Title Loans
Source: The Florida Attorney General's Office
A title loan is a way to borrow money against your motor vehicle. Based on your vehicle's value, a lender determines how much money you can borrow. On average, title loans are $250 to $1,500, but they can be as much as $5,000 or $10,000. The duration of these loans is often short-term, such as 30 days. In a title loan transaction, you keep your motor vehicle and drive it, while the lender keeps the title to your motor vehicle as security for repayment of the loan. If you cannot repay your loan, the lender will repossess your motor vehicle, sell it and pocket whatever you owe. Because of the risk of losing your vehicle if you miss a single payment, you should consider the following before taking out a title loan:
Consider the Alternatives
On its face, a title loan might seem attractive, especially if you need cash right away or have a problem getting a loan from a traditional lender, such as a bank, savings & loan or credit union. However, if you take out a title loan you might end up losing one of your most valuable possessions and your sole means of transportation. Instead of a title loan, you might consider:
- Working out a payment plan with the seller or provider of whatever it is that you are taking the title loan out to pay for; you should not, if at all possible, take out a title loan to pay for necessities such as rent or food;
- Contacting a credit counseling service, which might help you sort out your finances at a reduced rate or for free depending on the city or county where you live;
- Borrowing from friends or family; or
- Seeking financial help from a charity or government agency.
What You Have to Pay
Florida law allows a title lender to charge you interest on your loan of up of 30% per year for the first $2,000 you borrow; 24% a year for any additional money you borrow between $2,000 and $3,000; and 18% a year on any money you borrow over $3,000. See Florida Statutes, Chapters 516 and 537. That means, for instance, that if you borrow $1,000 you will be obliged to pay back $1,000 in principal and also up to an additional $300 in interest over the course of a year. If you arrange to pay back your loan in, say, one month, you would have to pay back $1,000 and $25. Consider carefully whether you're going to have that money in time to repay.
Get the facts you need
Two Florida laws regulate title loan lenders. Under Chapter 537, you and the lender must sign a written agreement before you get your loan. Be sure to read and understand the agreement before you sign. It must say how much you are borrowing (called the "amount financed") and what the interest rate will be. It must also give you the address and phone number of the Florida Department of Financial Services (formerly the Florida Department of Banking and Finance), the state agency that regulates title loans. If you have complaints about your loan, you can direct them to the Department's hotline at 1-800-342-2762.
Under 357, the loan agreement must also explain that if you do not repay the loan the lender can take possession of your vehicle, sell it and keep the proceeds up to the amount you owe along with any reasonable expenses to cover the repossession and sale.
Also, the lender must notify you if he intends to repossess your vehicle and you will have the chance to arrange to hand it over instead of having a repossession agent come to get it. You must have a chance to remove any personal property you have in the vehicle.
In addition, up until the time the car is sold, you still can get it back if you pay back your loan and any reasonable expenses. The lender has to tell you 10 days in advance of the time and place of the sale and give you an accounting of what is owed.
However, most title lenders are regulated under another statute, Chapter 516, which does not contain all of these protections. The lender is required to give you a written statement of the amount borrowed and the interest rate. But repossession and sale procedures, and what lenders can charge as extra fees, are not as specific as in 537. If you decide to take out a title loan, you should ask the lender what his policies are on notifying you in advance of a repossession or a sale, and on whether you might be able to get your car back before it is sold and for what charges.
Remember that a title loan is not risky for the lender but it may be very risky for you.