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>What exactly is a car title loan?

A car title loan is a secured personal loan in which the borrower's car is used as the collateral. The borrower gives the lender a lien on the title and a set of keys to a vehicle they own outright. The lender then provides a loan for up to 50% of the wholesale value of the car. For example, if a car's wholesale value is $1,600; the maximum amount that can usually be borrowed is $800.

What's "predatory" about car title loans? Car title lenders make money by charging outrageously high interest rates: 300% -- 360% APR! Additionally, they repossess the cars of borrowers who then cannot pay off these high-cost loans. They also target people who need money fast, don't want to undergo a credit check or do not have a bank account. Often they target people with bad credit, low-income individuals, the elderly, immigrants, and military members. Car title lenders also skirt around or slip through loopholes in state laws to avoid the regulated environment that most businesses follow. The Lending Process - How most people get into trouble Car title lenders provide borrowers loans of up to 50% of the wholesale value of their car. The lenders then charge extremely high interest rates of 25-30% per month (or 300-360% APR) plus other fees ($75-$200 for the "membership" or "cash advance" fee and the cost of putting a lien on the title). They also make and keep a set of duplicate keys to the car so they can easily repossess it. The borrowers get monthly billing statements. Often, after only a few months, many borrowers cannot keep up with the extremely high payments needed to sustain the loan.

The Problem

Predatory interest rates, the membership and other fees charged by car title lenders make it hard for borrowers to pay off the loan in the required time period. Many borrowers are led to believe that they only owe 25%-30% APR, but the actual cost is 300 to 360% APR. People with financial problems may see this as a good, fast and easy option to help. However, the solution these loans provide is only short-term, and it usually has a long-term negative effect on borrowers' finances. When the reality of the real interest rate sets in, many people realize they will not be able to continue payments.

Additionally, most of borrowers find that the amount they owe keeps increasing despite having made payments. If the borrower cannot pay the loan, the lender can easily repossess the car with the duplicate set of keys. Borrowers are then left without transportation, something that is critical to employment and meeting personal and family needs.