A auto title loan or a payday loan both have similar interest rates

The quick cash industry is a profitable one, and the number of stores in the United States that offers the high interest loan products now exceeds the number of major fast food outlets. Yes, in most states you can obtain a payday loan more easily than you can get a hamburger from Burger King. While they are legal in most states, cash advance loans often draw the ire of legislators, who don’t like seeing their poorest constituents borrowing money at 400% interest.

Some states have put an end to such lending; Arkansas and North Carolina have kicked the lenders out this year. In Oregon, a tough new law has gone into effect that, while permitting the loans, caps the annual interest rate at 36% per year, a rate that lenders say is not a profitable one. In Oregon, may lenders are now offering car title loans instead, which remains unregulated and which still permits interest rates in the range of 300% annually. As a bonus for lenders, the loans are now secured loans, as the borrowers must put up the title of their car or truck as collateral for the loan. If the loan is not paid on time, the lender may sell the vehicle to recoup their investment.

In Florida, the opposite has happened. In the late 1990’s legislators were alarmed at the number of merchants that were offering to lend money in exchange for car titles. Despite the fact that the loans were secured, which one would think would keep interest rates down, lenders were still offering the quick cash at rates in excess of 300% per year. The state legislature attempted to put an end to that in 1999, when it passed a law limiting the interest rate on car title loans to 30% annually. Did that put an end to high interest lending in the Sunshine State? Of course not.

Just as in Oregon, when one type of loan became impractical or unprofitable, lenders simply switched to another product. In Florida’s case, car title lending came to an end almost overnight, as most of the lenders immediately switched to offering cash advance loans instead. True, the loans are no longer secured by collateral, but on the other hand, they are also no longer restricted by a relatively low 30% annual interest rate. In the last seven years, the number of lending institutions in the state has exploded, as current law limits fees on loans to $15 per $100 borrowed, which translates to 391% annually. That is a hefty return by anyone’s standards.

Florida has some restrictions. Unlike in other states, borrowers in Florida cannot “roll over” the loan by renewing it. The loan must be repaid within two weeks, but if the borrower cannot repay, they are granted another 60 days to pay with no additional interest.

Still, secured or not, the loans are not particularly good ones for consumers.

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