If you’re in a financial emergency and you don’t have access to a conventional source of credit, a title loan might seem like a viable solution. With a title loan, you can use the title of your vehicle as collateral to acquire some quick cash. This can seem appealing for a few reasons: you can receive your funds in just a few minutes, there is no credit score required, and you can often borrow up to 25% – 50% of your vehicle’s value.
Not so fast:
There are a few red flags that raise alarm right away. First and foremost, you have to surrender the hard copy of your car title in order to be approved for your “loan”. Many title lenders also require you to hand over an extra set of keys and even equip your vehicle with GPS tracking to make it easier for them to repossess your vehicle in case you can’t pay them back.
What’s really going on?
A title loan would be a secured loanbecause you are putting up the title of your car as collateral. However, there is one big catch—it isn’t really a loan! It’s technically a 30-day contract to repurchase the title of your car. Under these terms, the lender now owns the title to your vehicle, and it won’t be yours again until you pay back the amount you borrowed plus all of the interest.
Insurmountable interest:
This is where title loans become especially treacherous—title lenders often charge 25% monthly interest. For example, if you take out a 30-day title loan for $1,000 and the monthly interest is 25%, you will have to pay back the full $1,000 you borrowed plus $250 in interest in just 30 days! To put this in context, the APR of a title loan with 25% monthly interest is 300%! (APR or “annual percentage rate” refers to the total yearly interest of a loan and measures the true cost of a credit product.)
Georgia on our mind:
In Georgia—where VIVA is headquartered and the majority of our current borrowers reside—the maximum APR for a title loan is “capped” at an extortionate 187.5%. Title lenders in the Peach State comply with this regulation by starting the monthly interest rate at 25% for the first three months then dropping the monthly interest to 12.5% thereafter. This allows the lender to get as much as they can up front, while still charging the maximum over the course of the loan. Despite being banned in 30 states, loose regulations have enabled title lenders to thrive in our home state.
The rollover trap:
Only about 12% of title loan borrowers are able to pay back their loans at the end of their 30-day due date. At this point, the title lender could repossess your vehicle. However, they don’t really want your car—they want more money. Therefore, if you can’t pay them back in 30-days, a title lender will often allow you to roll over your “loan” into a new 30 day contract—adding more fees and interest to the amount you already owe. Due to the exorbitant interest rates and the debt cycle incurred by this rollover trap, it is common for title loan borrowers to end up paying more in interest and fees than the amount they initially borrowed!
The bottom line:
Although title loans may at first seem appealing due to their lenient approval process and immediate disbursement of funds, they are revealed to prey on the financially vulnerable and trap their borrowers in rapacious cycles of debt. Not only are borrowers subjugated to mountains of interest, they are at risk of losing their means of transportation in the process—around 1 in every 5 title loan borrowers will end up having their car repossessed.
Providing a better alternative:
VIVA was founded to provide affordable financing for individuals who have limited financial options due to their credit history. VIVA offers unsecured personal loans up to $10,000 with rates of 12.20% – 25.61% APR that can be used to cover emergency financing needs and refinance expensive debt—including breaking free from predatory title loans. Your eligibility with VIVA is based on employment history—instead of credit score—and there is no collateral or minimum FICO score required. Please visit www.viva-finance.com to explore the rest of our financial empowerment resources or see if there is a financial option that is right for you. If you have any questions, please give us a call at (678) 685-8834 and a team member would be happy to speak with you.
Thank you for being part of the VIVA Finance community and we look forward to serving your financial well-being.
Sincerely,
The VIVA Team
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