Do a quick search for title loans online, and two opposites appear:
First, dozens of fiercely-competing websites. These sites are full of photos of grinning customers fanning out hundred dollar bills for the camera. They say, "I got $1,000 FAST!" Or, "Bad credit? No credit? It doesn't matter!"
Second, peppered throughout the website results are news stories about hapless citizens suffering the ill effects of their poorly-chosen loans. Math is used: "Becky took out a loan for $500, paid back $1235.97, and still owes $2,445.87!" Vilification is used: "The title loan company refused to lower her payments, and harrasses her every day!"
Is it possible that the truth about title loans lies somewhere between these two extremes?
Government Protection against Predatory Loans
First of all, what does the government do to protect consumers? nevada is one of the states where title loans are legal. Here are some recent and long-established laws about title loans in Nevada, and what they do to protect consumers, from the secretary of state website.
The Law: NRS 604A.445. This law states that the term of a loan must not exceed 210 days.
How This Protects the Consumer: Predatory loans leech money out of borrowers over a long period of time. A shortened loan term severly limits the amount of money a predator can sap. The limit ensures that this kind of short term loan stays short term, and doesn't sprawl over years. The horror stories found in news articles tend to focus on loans that stretch too far and cost too much.
The Law: NRS 604A.455. In the event of a defaulted loan, the sole remedy of the lender is repossession of the vehicle.
How This Protects the Consumer: With a few exceptions, a title loan lender in Nevada is not allowed to harrass a customer for any more money after a vehicle is repossessed. They can't go to a collection agency or ruin a customer's credit. They can't charge extra interest or fees. The repossessed car is considered payment in full.
The Law: NRS 604A.455 again. If a vehicle is repossessed, the lender must make every reasonable effort to return the personal property within it.
How This Protects the Consumer: Even if someone loses their car, they won't lose the stuff in it. Backpacks, carseats, work ID's, purses, money, or anything else in the car at the time of repossession must be returned to them.
The Law: NRS 604A.450. Lenders cannot issue a loan that is too large to be repayed.
How This Protects the Consumer: A loan that is too large to be repayed will trap the unwitting consumer in a financial nose-dive that ends, at best, with the loss of their vehicle. The provision in this law seeks to prevent that.
In a title loan horror story, the loan is huge. It's impossible to repay. It drags out for months. The car is repossessed, but the loan remains. It drags out for years. But in Nevada, by law, the loan cannot drag out, and it cannot endure beyond the repossession of the car. So, what's the worst that can happen? Can consumers still be taken advantage of by predatory title loan lenders?
Within the law: How Predatory Title Loan Lenders Survive within the System
- High Interest
- State law requires interest rates to be presented in a yearly format, the commmonly accepted APR. Since the maximum allowed term for car title loans is 210 days, no one should ever have to pay the full amount dictated by the rate. Still, these rates can be very high. A %200 percent APR paid over six months on a loan that cost $1000 means that $2000 will be repayed when the loan is complete. Predatory lenders use high rates to demand exorbitant amounts of money from people in desparate situations, who have few options.
- Exaggerated Income:
- While Nevada state law clearly prohibits lenders from handing out more money than a borrower is able to repay, no one knows the future. Predatory lenders take advantage of this to overestimate a borrower's income. Faced with payments they can't make, the customer has no choice but the loss of their vehicle.
Every state is different. Within Nevada, these are the laws and the loopholes that predatory lenders are bound by and can escape through. This knowledge should help potential borrowers evaluate their situations and make good decisions. But there is a third consideration.
People Are People, No Matter How Small (Minded)
Just as every state is different, every company is different. Some loan companies, lawyers, and used car salesman are greedy and unethical. Some aren't. Some banks, payday lenders, and title loan places are predators. Some aren't. Looking for title loan companies online will lead you to stories about the worst predators and the websites of the best marketers, but you won't know the person over the counter until you walk in.
Good business is good business everywhere. A company that traps its customers, locks them into bad loans with bad terms, and responds brusquely to requests for change will find itself missing out on a potential best asset: repeat customers. A customer who gets burned provides an income source only for a few months. A customer with a pleasant experience can provide income off and on for years to come. Wise companies know this. A wise title loan company carefully evaluates each customer and writes only loans that can be repaid.
After learning the title loan laws governing the state you're in, the only question to ask yourself is: Is this particular title loan company, the one with the sharp sign and beautiful people behind the counter, going to take advantage of me? They smile when I walk in and their couches are comfortable... how can I know? Is this one simple loan going to require me to sell my soul?
And the answer will be right there in the paperwork they ask you to sign.
You know how much you can afford to pay every month. You know whether you're doing a good job at work or not. You know that washing machines break eventually and accidents happen. You have the knowledge you need to determine just how many payments you can make, and for how long. Go to the title loan company with that number in your head and don't let anybody scare, cajole, embarrass or trick you into signing up for loans you just can't afford. If you find yourself in an establishment that seems wrong for any reason, walk out. There will be another title loan company around the corner.
Not all title loan companies are evil. Not all title loan companies are good. As with everything in life, do your homework, read everything you sign, and evaluate the person you're shaking hands with. It was good advice when your grandparents were telling it to your mom and dad, and it's good advice now.
And never, ever sign any paper that lists your soul as collateral. That one really is from Satan.