A cash title loan or car title loan, the correct term for which is simply a title loan, is a loan whereby the collateral and only consideration for granting of which is the resale value of a car owned by the borrower. No other restrictions apply; whether the borrower has a good or bad credit record is not an issue for granting the loan all that matters is that the title to the car is clean, meaning that the car is fully paid for and no other loan is attached to it.
The whole process of obtaining a cash title loan can take as little as 15 minutes from a store site. While most financial institutions would avoid granting loans of less than $1000 because of the risk involved, commercial lending institutions prefer giving a cash title loan of at least $601 because of the higher interest rate of amounts above $600. Unlike banks and other financial institutions, a cash title lender is assured of the security of the loan by possessing the title to the car and a duplicate key.
So, for many borrowers, the cash title loan is the hassle-free and easy-to-obtain emergency loan that is usually denied to them by banks and other finicky financial institutions. In most cases, borrowers are so desperate for funds that they fall prey to predatory lenders who take advantage of their dire financial situation by offering outrageous rates for the car. In many cases discovered by consumer protection groups, not only were the borrowers made to pay over 300% interest rates (the highest rate ever paid was over 650%) but the lenders also repossessed the cars, sold them at a higher value than the loan assessed, and kept all of the proceeds of the sale.
The sad thing about this is that the law actually allowed this despicable practice by providing loopholes that the car title lenders exploited. Even when the law forbade lenders from imposing higher interest rates on loans, it did not say anything about schemes employed by the lenders such as “sale-lease back” schemes. In this popular scheme, the car owner is made to appear to sell his car to the lender, which is then said to be leased to him at a monthly rate higher than the allowed lending rate and said to be given the option to buy it back at the end of the lease period. In this scenario, some lenders were found to have charged a 651% interest rate, trapping the borrower in impossible debt and eventually repossessing the car.
A cash title loan should not be a way to lose your car. It should be a way for you to make an emergency loan that you can repay and protect the lender’s interest by providing for a legitimate form of security. In 2009, more than half the states in America have heeded calls and petitions from consumer advocacy groups and started to impose caps on interest rates in their respective areas. The laws they passed have acted to legitimize the title loan industry, making them more attractive to borrowers.