Title Loans

What is a car title loan?
A car title loan is a high interest short term secured loan. The loan is usually for 30 days. The collateral is specifically a car or vehicle. The lender holds the title to the vehicle for the duration of the loan. Very often the lender will request the spare keys for the vehicle in case he has to effect a repossession. The borrower will still have custody and use of the vehicle. In case of default on the loan , the lender takes possession of the vehicle. Because of this, a clear title is required to apply for such a loan.

Costs
Title loan costs are comprised of interest and fees.
Interest rates on loans vary from state to state with a median of 25% per month. Fees on the loans average $25.00 per loan. Online title loans range from 2 % to 54% per month. Title loan interest rate caps are guided by the legislation of the state. These range from 17% in Arizona to 40% in Illinois which has no rate cap. Online lenders may claim choice of legislation contract terms.
Title loans are generally over secured, with the average loan amounts at 50% of the cars value.
Note that an interest rate of 25% is monthly and therefore translates into 300% per year.

Amount Loaned
The maximum loan amounts are normally state regulated. These range from $2500 to $10000.
Georgia does not have a limit on loan size. The loan cannot exceed the fair market retail value of the vehicle.

Renewals
Several states limit the number of times the loan can rollover or be renewed. The average is six with some states going as high as eleven. Often the payments will be interest only, with a balloon payment at the end of the loan, equaling the original loan sum. For example a $500.00 loan can consist of 5 payments of $125.00 with a final payment of $500.00.

Risks
The collateral and high interest rates that characterize title loans, result in their being high risk. As such there is the risk of paying high interest rates and failing to pay the balloon payment. This results in loss of the vehicle and loss of all payments. Despite their convenience in emergencies and their rapid approval process, due diligence is important before contracting an auto title loan.