Would you willingly pay $4,000 for something that’s worth exactly $1,000? Of course you wouldn’t. And that’s why you shouldn’t take out a title loan. Title loans are small dollar, short-term, high-interest, predatory loans. The lenders who offer title loans prey shamelessly on the very populations that can least afford them, and they justify it by pointing out that they provide loans to consumers who don’t qualify for traditional loans and that the people who take out these loans do so willingly. And while these simple observations are true, they don’t really justify the far-reaching damage these lenders do to the majority of borrowers who are already struggling financially.
Thankfully, though, Pennsylvania is among the 30 states that aren’t having any of the “providing a necessary service” and “freedom to choose” nonsense spewed by title lenders who are eager to bilk you out of hundreds or thousands of hard-earned dollars. Title loans in Pennsylvania are illegal, and for good reason.
Title Loans Are the Devil’s Playground
In the 20 states where title loans are legal, only a handful cap title loan interest rates to protect consumers from extreme hardship in paying them back. Most of the states allow title lenders to charge an APR, or annual percentage rate, as high as 550 percent, although the majority of title lenders stay around the 300 percent APR mark. This means that a $500 title loan taken out to cover an emergency car repair will end up costing a total of $2,000 if the borrower takes a year to pay it back.
Here’s how title loans work: You drive your car to the lender’s storefront. The value of your car is determined according to the lender’s criteria, which almost always results in a lower estimated value than what you’ll find through Kelley Blue Book. The lender offers you between 25 and 40 percent of the vehicle’s value, and as soon as you turn over the original title to your vehicle and an extra set of keys, the lender hands you a stack of cash. Please take a moment to enjoy the sensation of its weight in your hands, because it may be the last big chunk of money you’re gonna see for a long, long time.
When you default on the title loan, as one out of every six borrowers will, the lender will use that extra set of keys to drive your car to their storage facility to await auction. They can do that, because they have the original title, and your signature is on the loan whose terms and conditions probably clearly state that if you default on the loan, you’ll lose your car.
How a Title Loan Jacks Up Your Life
Here’s an all-too-common scenario: Anita Littlecash takes out a $1,000 title loan from Rip-Off Loanz, Inc. The term of the loan is 30 days and the interest rate is the standard 25 percent a month, or 300 percent APR. At the end of the first month, Anita now owes $1,250, but she can’t find that much cash just lying around, so she pays the $250 in accrued interest and rolls over the loan for another month. At the end of the second month, the miracle she’s been praying for hasn’t resulted in $1,250 falling from the sky, so once again, she pays the $250 in accrued interest and rolls over the principal again. Her prayers continue to fall on deaf ears for a year, which we’ll say is her lender’s rollover limit, and at the end of the 12th month, she still owes $1,250, even though she’s already paid $2,750 in interest. Well, Anita still hasn’t gotten her miracle, and so she wakes up one morning to find nothing but crickets in her garage.
The lender sells her car for $5,000 at auction and recoups the $1,250 balance of the loan. If Anita lives in one of the states where pawn laws govern what’s done with the surplus proceeds of the sale, the lender pockets the remaining $3,750, just because they can. So Anita’s final tab for that $1,000 loan is $7,750, and on top of that, she now has to figure out how she’s going to come up with the money to buy a new car. This time, a title loan isn’t an option, because Anita no longer has a car to secure a title loan.
Pennsylvania: “Not In My Back Yard!”
Title loans are one hundred percent illegal in Pennsylvania, and equally predatory but slightly less destructive payday loans have an interest rate cap of 6 percent for unlicensed lenders and a 25 percent cap for licensed lenders, making these alternative small dollar, short-term, high-interest, unsecured loans completely not worth a lender’s time.
However! If you live in Pennsylvania but really want to spiral into uncontrollable debt very quickly, you can head south to get a title loan in Delaware, where predatory lending is perfectly legal at astronomical interest rates.
Sticking It to Your Delaware Title Lender
As soon as it becomes apparent that you’ve made a huge mistake in getting a title loan in Delaware, you can contact the Philadelphia Debt Clinic & Consumer Law Center for help. See, Pennsylvania law protects its residents from title loans regardless of where the loan documents were signed. The Philadelphia Debt Clinic sues title lenders in Delaware to get Pennsylvanians’ car titles back and secure refunds for the illegal interest paid. You might also be entitled to damages, and the lender may be required to pay your legal fees as well. If your car has already been repossessed and sold, you may also be able to get compensation for the value of the vehicle.
But you can avoid all that rigamarole by using your innate resourcefulness to find another, safer option for getting a little extra cash when an emergency comes up.
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