How to Protect Yourself: Title Loans

How to Protect Yourself: Title Loans

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. Title loans can be for relatively small amounts like $250 to $1,500, but they can also be for larger amounts such as $5,000 or $10,000. The duration of these loans is 30 days after the date of the title loan agreement, but it may be extended for one or more 30-day periods by mutual consent. 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 can and probably will repossess your motor vehicle, sell it and pocket whatever you owe. If this happens, within 30 days after the sale of the motor vehicle, you are entitled to receive the proceeds from the sale in excess of the amount due on the loan (including the principal amount, interest through the date of repossession and the lender’s reasonable expenses in repossessing and selling the vehicle). 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:

Seek out alternatives to title loans.

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 or credit union. However, if you take out a title loan you might end up losing one of your most valuable possessions and your 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;
• 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.

Understand what you will 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. 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 plus (approximately) $25 in interest. Consider carefully whether you're going to have that money in time to repay the title loan and avoid repossession of your vehicle.

Get the facts you need.

Two Florida laws regulate vehicle-secured finance loans. Under Chapter 537, Florida Statutes, the Florida Title Loan Act requires title loan lenders to be licensed by the state Office of Financial Regulation. Under the law, in order to receive a loan, 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 specify how much you are borrowing (called the “amount financed”) and what the interest rate will be. You may verify a title loan lender’s license with the Florida Office of Financial Regulation online at www.flofr.com or by phone at (850) 487-9687.

Under Chapter 537, 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 the lender 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. Additionally, 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.

Chapter 516 does not contain all of the protections offered in Chapter 537. The lender is required to give you a written statement of the amount borrowed and the interest rate; however, repossession procedures, sale procedures and what lenders can charge as added fees are not as specific as in Chapter 537. If you decide to take out a finance loan from a lender, you should ask the lender what its 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.

File a complaint.

If you wish to file a complaint about your title loan servicer, you may do so by contacting the Florida Office of Financial Regulation online at www.flofr.com or by phone at (850) 487-9687. Additionally, you may file a complaint with the Attorney General’s Office online at www.myfloridalegal.com or by phone at 1-866-9-NO-SCAM.

You may also file a complaint with the Florida Department of Agriculture and Consumer Services, which acts as the State's consumer complaint clearinghouse, at www.floridaconsumerhelp.com.