| In today's society, borrowing money seems to be | | | | lender in the event that the loan is not repaid in a timely |
| inevitable. No one pays cash for their car or their home | | | | manner, which for such loans is usually 30 days. If the |
| any more; no one can afford to do so. As a society, | | | | car is repossessed for failure to pay, the lender may |
| we borrow. We take out loans from banks, credit | | | | sell the car to recoup the loan amount. Most states |
| unions and credit cards. If we don't have good credit, | | | | require any additional funds from the sale of the car to |
| we take out payday loans - short-term loans that | | | | be returned to the borrower, but some states permit |
| have average interest rates of 400% or more per | | | | the lender to keep it all. |
| year. If we can't manage that, we resort to something | | | | One might think that offering collateral for a loan would |
| even worse - a car title loan. | | | | dramatically lower the interest rate. After all, the lender |
| Payday loans are short-term loans, usually two weeks | | | | isn't really risking anything, so the loans should be about |
| in duration, that let consumers borrow money in the | | | | the same price as a credit card loan. They are not. In |
| $100-$500 range. The loan comes with a fee, which is | | | | fact, car title loans are almost as expensive as |
| actually disguised interest, that ranges from $10-$30 | | | | payday loans, and average about 300% per year. |
| per $100 borrowed. $15 is average; that amounts to an | | | | Such loans are a great deal for the lender, who sees |
| annual interest rate of 391% per year. If the loan isn't | | | | huge interest rates while taking no risk, and a bad idea |
| repaid in two weeks, the borrower can extend the | | | | for the borrower, who risks losing their car while still |
| loan for another two weeks by paying the fee a | | | | paying sky high interest rates. |
| second time. Some states permit consumers to "roll | | | | Most consumers have only one form of transportation |
| over" their loans a half a dozen times or more. If the | | | | - their car. If they lose their car to an unwise loan, they |
| borrower cannot repay, there is little recourse on the | | | | have no way to get to work. Without a way to get to |
| part of the lender, as the loans are not backed by | | | | work, they cannot ever hope to repay the loan before |
| collateral. | | | | the car is sold. Making matters worse is that having no |
| Car title loans are different, and generally a worse | | | | way to get to work makes it difficult to earn money to |
| choice for consumers. In exchange for a loan of a | | | | buy another car. Car title loans are a bad risk, and |
| similar amount, a few hundred to perhaps a thousand | | | | putting your car up as collateral to borrow $500 is a |
| dollars, the borrower does put up collateral in the form | | | | poor financial choice. |
| of their car title. The borrower offers their car to the | | | | |