Car Title Loans Are Liable To Leave You Taking The Bus

You surely already know better, because you’re a loyal Consumerist reader, but stay far, far away from the form of legalized usury known as car title loans! CNN has published an overview of the industry, noting that APRs frequently exceed 200%, and that added fees and loan “rollover” options help keep borrowers in a cycle of debt.

We thought one detail worth sharing with anyone who will listen is that some title lenders will disclose a monthly interest rate instead of an annual one, even though legally they’re required to publish the APR. For borrowers who don’t know any better, a 25% monthly interest rate doesn’t sound that bad compared to many mid- and low-end credit cards these days, until you multiply that by 12 and realize your APR would be three hundred frickin’ percent.

“Why car title loans are a bad idea” [AOL Autos | CNN]
(Photo: Photog*Phillip)

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  1. Etoiles says:

    There are tons of commercials for these on lately (I’d not seen them before, but it’s possible this is because I lived someplace where few people owned cars until I moved to VA) and every time I see one I just think, “No, really, how is that legal?!”

  2. SkokieGuy says:

    Thank you for helping people to learn about horribly unfair car title loans.

    I frankly think the illustration points out a far bigger problem, tacky overpriced denim with faux aging.

    This is a serious consumer issue that must be stamped out!

  3. rpm773 says:

    The cash received from an auto title loan comes in handy for the down payment on rent-to-own furniture and appliances.

  4. HogwartsAlum says:

    Legal loan sharking, that’s all it is. I wonder if the Mob is in on it!

  5. ironchef says:

    that’s the private unregulated market for ya. Never underestimate the power of unregulated capitalism to screw people.

    • balthisar says:

      @ironchef: Nor underestimate bad parents/teachers/whoever that never taught anyone basic financial responsibility and how not to make stupid decisions.

      • crashfrog says:

        @balthisar: Stupid in the long-term, maybe; but when it’s a matter of “take out a usurious loan” or “get evicted from your apartment”, how stupid is it, really?

        I suspect what you think of as “smart” finances really consists of a set of mutually contradictory guidelines, like “don’t take on unneeded debt” vs “you need to have debts to build credit history”, or “pay off your credit card every month and don’t run a balance” vs “credit card companies will cancel your card if you don’t run a balance, and that will hurt your credit rating.”

        All the high school finance classes in the world aren’t going to help you in a world where the entire market is determined to punish you for managing your finances in a responsible way.

  6. Rectilinear Propagation says:

    O M G
    I was trying to find one of those “The mon-ey, the REAL mon-ey! Tee-hee!” ads. I loathe those ads but can’t remember which company they’re for.

    I found this instead:

    This guy has four videos, all of which are about how car title and pay day loans are supposedly good things.

  7. Grive says:

    25% monthly?

    That’s not 300%.

    The anual rate if it’s compounded monthly will be 1455%.

  8. B says:

    Burns: Are you acquainted with our state’s stringent usury laws?
    Homer: [slowly] Usury?
    Burns: Oh, silly me! I must’ve just made up a word that doesn’t exist.

  9. ShortBus says:

    I think I might be getting old. I’m no longer jaded when I read about these types of things. Does it make me evil when I wonder if this is a business I ought to consider getting into?

  10. edrebber says:

    The car title loan industry doesn’t need a bail out from the U.S. Treasury. What’s the cost of your mortgage, when you take into account the stock market crash and the tax hike that will follow?

  11. Saeculorum says:

    If there was no need for loans like these, they would not exist. It is not possible to create a market where there is no demand.

    Question: Would it be preferable for people to have no emergency cash source or to take out one of these loans?

    • zegota says:

      @Saeculorum: Not true. Things like this can survive solely on ignorance on the consumer’s part.

    • crashfrog says:

      @Saeculorum: It is not possible to create a market where there is no demand.

      Then how do you explain supply-side economics?

    • ameyer says:

      @Saeculorum:
      “Question: Would it be preferable for people to have no emergency cash source or to take out one of these loans?”
      Honestly, I’d rather see people have no emergency cash source.

    • Necoras says:

      @Saeculorum: It would be preferable that people have a savings account. Barring that, it would be preferable that people use an emergency credit card and pay it off ASAP after the crisis is over. You can create a market if you create a fake product and fake demand. The product in this case is a lowish interest rate loan (the interest rate is actually high, hence the product isn’t real). The demand is the idea that people need thousands of dollars RIGHT NOW!!!! There is really only one reason you would need several thousand dollars on short notice: medical bills. Any reputable hospital/doctor will gladly allow you to pay over time, interest free. The other argument is rent, but if you’re to the point of foreclosure/eviction then this has been coming for 3 months. If you cannot come up with rent after 3 months you do NOT need to be getting into a 300%+ interest rate loan.

    • Orv says:

      @Saeculorum: Quibble: Anyone who works in marketing will tell you that marketing is all about creating a demand where none previously existed. Take energy drinks, for example. Do you think, before Red Bull was invented, people were standing around saying, “Damn, I really wish I had a caffeine-laden drink that tastes horrible right now”? No, they just drank a cup of coffee instead.

  12. Acolyte says:

    Sadly there is a need for such services, I would like it if they were just more honest about their rates. Unless you read the small print you don’t know how much you are going to get hosed……..

  13. mugsywwiii says:

    Every high school in this country needs to have a required personal finance course. You don’t need regulation to combat this, you need to educate the ignorant.

    • Bruce says:

      @mugsywwiii:

      “you need to educate the ignorant.”

      The auto title and payday loan companies *ARE* educating the ignorant, at least the ones who learn from the lesson being taught.

  14. kabuk1 says:

    im not surprised that these kind of loans exist, im just shocked that there are people STUPID enough to put their CAR on the line just for a couple grand. maybe im just wierd, but id rather be late on my bills & get my lights turned off for a week than lose my friggin’ CAR. jeez. i could live in my car if i got evicted, but i cant walk the 20 miles to work everyday!

  15. loueloui says:

    I have often thought of ways like this I could make a lot of money without much work.

    I have settled on mugging people as a business model. Seeing as I am a big, tall guy and particularly menacing when I want to be I am well suited to the job. Barriers to entry are relatively low, as you can start out with say, a bat, and work your way up to a knife or gun.

    Seeing as I am still ramping up, I figure I will start out with easy targets such as the elderly or children.

    Since I am unencumbered by things like drug addiction or stupidity, I will only focus my efforts on when they will really pay off like the first part of the month, or on Fridays when everybody gets paid. This will ensure the maximum payoff for the least amount of effort.

    Althought the penalties for failure are fairly high, the chances of doings so are relatively low. Of course then maybe I could count on Nancy Pelosi to bail me out since she seems to be in the business of doing so.

    I am going to have to take advantage of this opportunity rather quickly as my target audience, i.e. people with money, is declining quickly.