Title loans are the worst type of predatory loans, according to both experts and the victims of a high-interest, over-secured title loan that led to the repossession and sale of their vehicle.
If you’re lucky enough to have no idea what a title loan is, it’s a short-term loan you get by forking over the original title to your vehicle in exchange for a relatively small amount of money. The catch is, title lenders in states where there is no cap for the interest rate can charge astronomically high interest rates that make it virtually impossible to pay back the loan during the initial period, which is typically 30 days unless specified by state laws.
While title loans in Virginia are legal, there are a few pretty nifty laws in place to protect consumers from some of the more roguish behaviors for which title lenders are notorious.
What To Know About Car Title Loans
Car title loans, often just called title loans, are short-term loans. They typically last 15 or 30 days. The loans use your car, truck, motorcycle, or other vehicles as collateral. They’re usually for amounts ranging from 25% to 50% of the vehicle’s value.
To get a car title loan, you must give the lender the title to your vehicle. Usually, you need to own the vehicle free and clear, but some lenders will take your title if you’ve paid off most of your vehicle loan. The lender will want to see the vehicle, a photo ID, and proof of insurance. Many lenders also want a duplicate set of keys for the vehicle.
If you get the title loan, you won’t get your vehicle title back until you repay the amount you borrowed, plus the lender’s finance charge and any other fees.
Car title loans are expensive. Title loans usually have an average monthly finance fee of 25%, which translates to an APR of about 300%. Title lenders often add other charges to the loan amount, like processing, document, and loan origination fees. You also may have to buy add-ons, like a roadside service plan. If you have to pay added fees and buy add-ons, the cost of your loan will be higher.
Costs increase with rollovers. Like with payday loans, if you can’t repay a title loan when it’s due, the lender may let you roll it over into a new loan. But rolling over the loan will add more interest and fees to the amount you owe.
You can lose your vehicle. If you can’t repay the money you owe, the lender may repossess your vehicle, even if you’ve been making partial payments. When you get the loan, some lenders insist on installing GPS and starter interrupt devices so that they can locate the vehicle and disable its ignition system remotely, making repossession easier.
Once the lender repossesses your vehicle, they can sell it, leaving you without transportation. In some states, lenders can keep all the money they get from selling the vehicle, even if they get more than you owe.
Virginia’s State Corporate Commission (SCC) exists to “balance the interests of businesses and citizens” through laws and regulations. As such, it wants you to be fully aware of your responsibilities as a title loan borrower, and it highly recommends that you find other sources of funding whenever possible when you need cash fast to cover an emergency.
If you do decide that a title loan is the route you’re going to take to fund that root canal or get your electricity turned back on, the lender has to inform you through a “clear and conspicuous printed notice” that the title loan isn’t going to solve your long-term financial problems and that the interest rates on title loans are inordinately high. Oh, and that if you don’t pay back your loan, they’ll take your car and sell it, leaving you hoofing the kids to school and walking yourself to work.
So do your research before you choose a title lender, and once you’ve stepped into the lender’s lair (aka “storefront”), it’s in your best interests to make sure the law is being followed. Although if the lender doesn’t follow the law, you can sue their pants off for actual losses and punitive damages, which may very well save your assets if your car has been repossessed.
In Virginia, title loans are governed by strict regulations that outline maximums for the loan amount, terms, and interest rates.
First of all, a title lender can’t give you more than 50 percent of the fair market value of your car, which isn’t really a big problem, since title lenders rarely offer more than 40 percent of your car’s value anyway. After all, once they repossess your car and sell it after you default on the loan, they need to make sure the sale of the car covers the initial loan amount plus the gigantic boat load of interest you probably owe.
Secondly, the loan term can’t be shorter than 120 days, and it can’t be longer than 12 months. This is really great, because usually, the principal plus interest is due in 30 days, and it’s rare that a borrower can come up with the principal amount plus the interest in such a short time. But not only does Virginia insist on giving title loan borrowers four solid months to pay back the loan, they also insist that the payments have to consist of more or less equal monthly installments of both principal and interest.
This is significant, because in most states where title loans are legal, the initial loan term is 30 days, and since most people can’t pay back the loan plus interest in 30 days, they end up paying only the interest and rolling over the principal to the next month. When they can’t pay it off again, they do the same thing again: pay only the interest and roll over the principal to the next month. And then they do it again, and again, and again, for an average of eight times. At the end of the lender’s rollover limit, the entire principal amount is due plus that last month of accrued interest. This is called a “balloon payment,” and it’s a common feature of a predatory loan.
The last way in which Virginia title loans differ meaningfully from those in other states is the maximum interest rate. Lenders in states where title loans are unregulated can charge whatever interest rate they please. Usually, it’s around 25 percent a month, equivalent to a 300 percent annual percentage rate, or APR, but it can be as high as 560 percent APR or even 1100 percent APR, as one title lender charged a Maryland resident a few years ago.
But in Virginia, the interest rate is capped at 22 percent a month for loans up to $700, which is still incredibly high – a $700 title loan will costing a total of $1,316 at the end of the minimum 4-month period, or – get this – $2,548 at the end of the maximum one-year term. For loans between $701 and $1,400, the rate is capped at 18 percent a month, and for loans higher than $1,400, the rate is capped at 15 percent a month.
Early Repayment Penalties
If you have a six-month title loan in Virginia and you inherit some money three months in, you can pay off the title loan early without having to pay a penalty. The lender can’t make you pay the three months’ worth of interest that they’re losing out on, and they can’t refuse to accept your early repayment. They also can’t refuse a partial payment that you offer in an attempt to lower your principal and interest on a loan that’s current.
If you can’t pay your title loan off by the end of the loan’s term, you’re in trouble. In Virginia, title loans can’t be rolled over, extended, or renewed. The end of the loan term is the end of the loan term, period, and if it’s not paid, it’s the end of your personal mode of transportation unless you have another vehicle hiding out in the garage.
When the Repo Man Comes Callin’
Whereas in some states, title lenders can repossess and sell your car without informing you of when the sale will take place, Virginia title loan providers must notify you in writing at least 15 days before they sell your car. The notice has to include the earliest date and time that your car may be sold, along with a detailed account of how much you owe on the loan. You can pay the outstanding balance at any time before the sale to get your car back. The outstanding balance may include “reasonable” costs in connection with repossessing your car, but the lender can’t charge you storage on the vehicle, and they can’t charge you any interest once the car is repossessed.
After your car is sold, the lender will take what they’re owed, and they must return the surplus amount to you within 30 days.
Got the Title Lender Blues?
If you have a title loan in Virginia and the lender isn’t following the letter of the law, or if you have any kind of complaint about a title lender, you can direct your complaints to the Bureau of Financial Institutions. Virginia takes violations of the law seriously, and you can recover actual and punitive damages in many cases.