Max Cash: What should people look out for when getting a title loan?
Fred: First point is simple. Can you repay the loan. Can you make the payment without causing you such distress that you will end up looking for one company to solve another companies problem (taking one loan out after another). Can you pay your normal bills with this additional bill? This is a tough question because there are several things and most of them surround interest rates and disclosures. When a person is in a financial crisis of any sort, their logic is sometimes compromised by the emotional distress of the moment. If you are starving, and someone offers you food, you might rush to eat that food but later you get sick because they put poison in the food. Getting a car title loan is no different. At the moment, you are starving for money and each time you go a bank they simply won’t help you so you turn to other options. Now here is where it gets tricky. Some lenders would prefer you come back over and over and want you as long term friends but others know that you are under stress and your experience may not be so good and will never come back so they make little to no attempt to keep you as a customer.
Max Cash: We’ll if that is the case why aren’t those companies out of business?
Fred: Governmental agencies do everything they can do sort them out and stop their practices. But in this modern world, you can help simply by using the power of social media. However, I also suggest that when you have a GOOD experience, you kindly act the same by getting the word out. If enough people did this, then the bad ones will have no place to hide and the good ones will be perfectly clear.
Max Cash: What about today? I need a car title loan today? How can I protect myself?
Max Cash: Well the big question on our readers minds is repossession of the car. No-one wants to get into a loan where the objective is to lose their car. What’s the truth behind repo’s and car title loans?
Fred: I would suggest to your readers that they read all my answer on this because I don’t want to get them confused. Some people already know that they will never be able to even make their first payment. They might have even falsified documents and got away with it which is sad for the car title loan company not doing proper underwriting. They had no intention of paying anything back and when the calls come in trying to get the customer to pay, they ignore them all. Of course the recourse is going to be to get the car. Title Loan companies will aggressively seeks the vehicles from people who clearly fraudulently is doing business with them or get their money back.
Then there are the customers who bit off a little more than they could chew. The payment, which they thought they could make, they just can’t. Things didn’t go like planned as life normally does. So they get afraid and don’t talk with the company about the situation. I do not know a SINGLE car title loan company that WANTS to repo a car from anyone. It kills the relationship and causes so much bad press that in the end, they won’t be in business very long. I do know of many who will do whatever it takes to keep a customer by allowing a payment to be skipped, or even lowering the payment amount or even redoing the loan itself.
The most important thing to know is to be upfront and honest from the start and stay that way through the loan.
Max Cash: But what happens if you so everything right and still you cannot make the payment?
Fred: You STILL have options. The first one is to get your car title loan refinanced by another car title loan company. Most will do this but the car cannot already be out for repo and if it is, you have to get current. You need to have lower payments in this case but again, don’t over obligate yourself. I cannot say this strongly enough because refinancing your loan means to me that you could not afford the loan in the first place so unless you get a better deal and a payment that you could afford simply do not do this. It MUST work and stop your crisis… not just make a new one.
You can also go to a credit counselor who will contact the car title loan company and work out a solution. Again, either you contact them or someone you authorize but in any case, no contact is the worst thing to do.
The next option is the final option… allow the repo and help the car title loan company by turning the car to them. This will avoid a repo company charge which will only add to your charges. In some states, the car is not immediately auctioned off. It is held in storage giving you some time to catch up and get it out. This little of time may be what you need to catch up the payments and then get it refinanced. Sounds horrible but if you do, the pressure will get taken off. You can get back on your feet and still use Uber for a while. Again, it’s not the best solution but it may help you.
Max Cash: The interest rate title loan companies offer seems real high. Why? Shouldn’t this be more like a credit card?
Fred: Actually no. The problem is that most car title loan companies cannot operate at credit card interest rates. Too many people don’t pay off their loans and this causes large losses for the car title loan firm. After all, these are suppose to be short term loans and meant to get you over the hump and the car title loan company requires very little for a lot of money. You need them to stay profitable so that they are there if you need them. Let’s be clear about this. I am not in favor of payday loans. They seem to trap people in a cycle of debt that and the default rate is crazy because of the incredibly high interest rates and the way the loans are structured. Title loan companies do not normally charge anywhere close to a payday loan and give more money but if you can get a loan via a friend, or a credit union or a bank…do it before you consider a title loan. If you can’t or you need the money faster, this is a great alternative. Again… don’t take out more than you can repay and make sure you can live with the payments. Don’t let the heat of the moment confuse you.
Max Cash: So okay, let’s get this whole interest rate thing cleared up because I think it’s confusing. How does that work?
Fred: Easy question but hard to answer because in truth not all car title loan lenders give the same programs. In my experience there are basically two types of loan programs. One is a fully amortized loan and the other is a interest rate payment loan with a lump payment due at the end.
If you do one with “interest only” and later full payback of what you borrowed, BUYER BEWARE! This type of loan can keep you constantly renewing the loan because you at some point have to come up with a lot of money to get out of it. The attractive part of loans like this is the monthly payment is so low. I would stay away personally from those.
The fully amortized loans is simple. A little goes to the chunk of money you took and a lot to interest. As time goes by, more goes to the borrowed amount and less to interest but that is of course if you pay it off for the loan term.
I’ll make this even simpler to understand. Almost all title loans are MONTHLY interest rates, compounded daily. When you get a credit card for example you will typically be quoted an “APR” or ANNUAL percentage rate but a car title loan is a “MPR” or Monthly percentage rate. So if you have an 8% MPR, that means it’s really 96% APR (8% times 12 months).
Now that you know your monthly rate, you need to break it down or “compound” it, by the days in the month. Some months have 28 days, some 29, some 30 and some 31. So Lets say the month you are trying to figure it out is 30 days and you have a 8% MPR… take your loan amount and times it by 8% and then divide it by how many days int he month. If you took out $5000 then your DAILY amount for that month would be interest would be $13.33. Not too bad actually. You rent a $20-$30K car for $40-$50 a day and you have to return it so it’s kind of the same idea. It’s costly… yes but it’s not intended for you to keep it long term.
Max Cash: So I want to find a car title loan location near me and sometimes I google a location and its an empty field! What’s up with that?
Fred: There is this fight among webmasters to get the top spot and get in the google local listings. Obviously if your site is never seen, then what’s the purpose of the website right? So webmasters in the past used to try to trick google by picking empty lots and claim them as real business locations. Google caught on and made it harder to do this but not all websites or directories do and of course, garbage locations get listed. All in an attempt to attract you to their site locally.
The problem is compounded when you have a business that serves a very large area…even an entire state or multiple states and you are set up to have people get a car title loan online. Google wants to show you brick and mortar locations and not who can serve them…sometimes serve them better with better rates! I understand why they would want to do this and it makes sense… if you want a pizza you want to see locations near you, not 500 miles away. Same with so many industries… stores, restaurants, doctors, ect. They, by simple logic, know you don’t want something far away but the car title loan industry is different. Some lenders are mom’pop brick and mortar locations, some have many locations to drive up to and some have one or two locations and either have the ability to send you the money electronically or go to a participating store they made arrangements with to get your money. No, they are not owned by that company but they do help you get your money from their store. Money-gram for example in Walmart’s is one example.
So I would not make “physical location” an issue as long as they are licensed by the state they are in, they can get you money and you know exactly where they are located at for their headquarters. If you think about it, the ones withOUT the storefronts may actually have lower costs and MAYBE lower rates. Trouble is, you have to go through something you are not familiar with.
My closing thought is this… a while ago one airline changed the game entirely. They go away from boarding passes and thrills on the planes. They boarded you in groups and let you pick your own seat. The result to them was much lower costs and of course changed the game for the airlines. Banks want you to do things one way, Car title Loans another. You will step out of your comfort zone but just make sure you do so with your eyes open and everything is clear.
About Fred Winchar
Mr. Winchar has been an advocate of car title loans since 2008. He started in the industry in advertising and being on the front lines with actual signings of funded loans to answering questions about how car title loans work. In 2009 he started representing several car title loan lenders nationwide. Since this time, he has become trained and passed several programs such as the Truth in Fair Lending Act (TILA), Gramm-Leach Bliley Act (GLBA), Fair credit Reporting Act (FCRA), Equal Credit Opportunity Act (ECOA), Unfair, Deceptive, and Abusive Acts and Practices (UDAAP) and the Electronic Funds Transfer Act (EFTA). He has been a guest lecturer at UNLV as business studies students and has been featured on Fox Business and CEO CFO interviews magazine. He is the current President of Tradition Media Group LLC and is licensed as a financial broker for car title loans in several states.