Seniors living on a fixed income or struggling to pay bills may be tempted to consider quick options such as auto title loan. This product, however, is "absolutely the wrong way to deal with a short-term financial problem," says Jay Speer, executive director of the Virginia Poverty Law Center.
Title lending is a $5.2 billion-a-year business, according to the Center for Responsible Lending (CRL). There are about 7,730 car title lenders in 21 states, charging $3.6 billion in interest on $1.6 billion in loans. About 20 percent of older Americans have used the product, according to a 2008 AARP national survey called. Most consumers get auto title loans to pay an immediate expense, such as a utility or credit card bill, says Speer. However, a $1,000 title loan often requires the borrower to pay back about $3,000 to $4,000. The loans impose triple-digit annual interest rates, with very short repayment periods. Borrowers who are unable to repay on time often roll the loans over month after month, incurring more fees and interest. Those who cannot pay and do not roll over their loans are subjected to repossession of their cars.
A 2013 joint study conducted by the Consumer Federation of America and CRL found that the average consumer takes out a car title loan for $951 and renews the loan eight times. An average annual percentage rate (APR) of about 300 percent means that consumers end up paying about $2,142 in interest alone. Repossession can add $400 or more in fees. State lawmakers and consumer advocates are working to stem the use of these loans, but several states have loopholes that allow title lending.
Instead of using these loans, consumers may borrow money from family members or a church, cut back on expenses, ask employers for a salary advance, or even ask the utility company to give them more time to pay their bills.