|
With the car as security, you would think that interest rates would be a lot lower than for payday loans. They are lower, but not by much. Nationally, title loans average about 300% per year, and lead to the same sorts of problems a cash advance loans - the inability of the borrower to repay while incurring “rollover” costs and huge interest fees. Plus, in some states, the term of the loan is limited to 30 days, which could make it difficult for many to repay in time. The risk to the lender is truly minimal. Not only do they have the car as security, but they rarely offer more than a fraction of the value of the automobile in exchange for the loan. It would be most unusual for a lender to offer even half of the value against the title of a car, yet the potential loss to the borrower could be much higher than the amount lent.
If the borrower is finally unable to pay, the car may be repossessed and sold. In some states, such as Georgia, the lender may sell the car and keep the entire proceeds of the sale, including anything that exceeds the amounts owed. It may seem unreasonable to allow someone to whom you owe $200 to sell your $5000 car and keep all of the money, but if you take out a loan in Georgia with your car as collateral, you are offering to let them do just that. Is it unreasonable? Of course it is. But at the moment, it’s currently legal, and if a Georgia lending company sets up shop to lend money on the Internet, it could apply nationwide, as well.
Such loans are now being offered on the Internet, with borrowers being subject to the laws of the states where the Websites are based. Increasingly, these sites are based in states such as Utah, where the lending laws are loose. For the hard working, relatively poor people who tend to take advantage of such lending, this represents perhaps the worst way to borrow money. Not only is it expensive, but you could permanently lose your car.
|
