How Online Car Title Loans REALLY Work

When you’re seriously strapped for cash, you may consider taking out a car title loan, which is essentially the same thing as pawning your car, except with the added benefit of being able to continue driving it. How does that work, you ask? Well, since the title loan provider owns your title until you pay back the loan, there’s virtually no risk for the lender. The risk is all on you.

While 30 states have banned title loans altogether, 16 of the states that allow them have no regulations in place to protect consumers from interest rates so high you’d think they’d been shooting up heroin all night. The annual percentage rate (APR) for a title loan can soar as high as 500 percent, but the typical interest rate is 25 percent a month, or 300 percent APR. The typical loan term is 30 days.

Applying for a Title Loan Online

Title lenders want to make the path to financial ruin as easy as possible for you, and so most of them let you apply online for a title loan, which is really kind of pointless, as you’re about to see.

TitleMax is one of the largest title loan providers in the nation, with over 1,350 stores in 16 states – the same 16 states that don’t regulate interest rates on these loans, of course. In order to see if I might qualify for a title loan, I headed over to TitleMax.com, hit the “Apply Now!” button and answered two questions: Do you own a car and its title? Yes. Do you have a government-issued ID? Yes. I hit the submit button and was soundly congratulated for qualifying. That was hard!

I filled out a short form with my name (Ima Poore,) phone number (I gave them my sister’s phone number, ha, ha, won’t she be surprised!) and the year, make, model, and mileage of my 2001 Honda Civic. Again with the congratulations, informing me that I qualify for up to $1,900* and that someone would be in contact with me shortly to help me get the cash I need. Meanwhile, they recommend I start getting the required documents together, which isn’t too tough, since all that’s required is the original copy of my lien-free title and my driver’s license or other government-issued ID. I don’t even need a bank account, proof of income, or proof of address to get my $1,900*! How sweet is that?

I’ll have to ask my sister what exactly TitleMax says when they contact the borrower, but I do know that they will provide the address of the nearest title loan provider, which in my case will require a road trip to South Dakota or Missouri, since Nebraska doesn’t allow title loans. I’ll be given instructions to drive to that location to submit my documents, fill out the paperwork, and have my car inspected.

So wait, why did they encourage me to apply online? Maybe it’s because “by submitting my information above, I authorize TitleMax and it’s [sic] affiliates to contact me by email or phone for business or marketing purposes.” Oh, I see. I took the marketing bait! Looks like someone might need to change her phone number, oops.

What Happens Next

If I decide to pursue my $1,900*, I’ll drive to Missouri to fill out the real paperwork while the lender inspects my car and incrementally lowers the amount of my loan for each Goldfish cracker that’s stuck to the floor mat with a sticky Jolly Rancher.

I’ll hand over my original title and a spare set of keys to make it easier for them to repossess my car, and I’ll skim over the teeny tiny small print, something about additional fees that may be charged include blah, blah, blah, yeah, yeah, just give me my money.

They’ll hand me my $1,200* (my kid likes Goldfish, what can I say?) and install a GPS tracker in my car to make it easier to locate at repossession time. I’ll sign the dotted line and drive away with $1,195**.

Thirty days pass, and the loan is now due. I owe the principal of $1,200 plus the $300 in interest for a total of $1,500. Who has $1,500 just lying around? Not me! If I did, I wouldn’t have needed a title loan in the first place, now, would I? So I call ’em up, give them a sob story, and they’re surprisingly accommodating. No problem, they say, just pay the $300 in accrued interest and worry about the principal next month. I can roll over the loan up to 12 times, they tell me, but they’ll still charge me 25 percent interest every month.

Thirty more days pass, and the loan is due again. I still don’t have $1,500 lying around, so I scrounge up another $300 in accrued interest and vow to pay off the $1,500 balance by the end of next month, come hell or high water. But I don’t, and so I roll it over again. A year passes. I’ve now paid $3,600 in interest and still owe $1,500. Unfortunately, I’ve rolled over the loan as many times as I’m allowed, and a week later, I’m standing in the alley watching my tail lights disappear into the bleak January dusk.

Three weeks later, I lose my job because I’ve been late every day since I started taking the bus, and I’ve called in sick three times because I just couldn’t face waiting for the bus in sub-zero temperatures and then walking the eight blocks to work against the howling, icy wind.

A week after that, my car is sold at auction for $1,000, which the lender puts toward my outstanding balance. I get sued for the $500 that’s left and end up saddled with court costs, repossession fees, and documentation fees on top of that, not to mention the massive black eye on my credit report. Ten days later, I get an eviction notice, and I move into the furnace closet in my parents’ basement .

And that’s how you apply for a car title loan online.

* “This is an estimate based on information you provided. All transactions are subject to vehicle appraisal and approval. Certain terms and conditions apply.”