According to The New York Times, only a few states keep statistical records of how many consumers take out title loans each year. California has seen enough of them, however, that it introduced legislation in 2011 to try to exert some control over the industry. The California Finance Lenders Law allows companies to give short-term loans secured by titles to motor vehicles, but the lenders must be licensed.
For the past few years, California has been in the spotlight when it comes to California title loan laws because of the state law. It wasn’t long ago that state officials from the California Department of Business Oversight were making a point of notifying consumers of the risks associated with these loans. They have been available for some years, but there was a sudden increase that almost doubled the amount of the principle in only one year (State Urges California Consumers To Be Wary of Auto-Title Loans.) For this reason, it’s important to understand title loan rules in California and California title loan repossession laws
Title Loan Interest Rates
Title loans typically are subject to very high interest rates, and California law doesn’t do much to limit how much the state’s lenders can charge. Interest on consumer loans under $2,500 can’t exceed 30 percent a year, but there’s no limit on loans over $2,500. The vast majority of title fall into the latter category, because lenders don’t want to offer loans where interest can be capped. Lenders can’t compound interest on loans under $5,000.
Administrative and Processing Fees
The cost of a title loan isn’t limited to interest. Lenders can charge administrative or processing fees in California as well. The law allows title loan lenders to charge up to 5 percent of the amount borrowed or $50, whichever is less, unless the loan is for more than $2,500. In this case, the ceiling jumps to $75 for loans of up to $4,999. There’s no cap for loans of $5,000 or more. If you’re late with a payment, licensed lenders can charge you an extra $10 during the first 10 days and $15 after that for each delinquency.
Other Title Loan Rules
California lenders are legally required to let you know what kind of extra fees and interest you’re agreeing to before you sign a title loan contract. They must prominently display their charges, although this can be accomplished by including them in the contract. If a lender offers any loans under $10,000, it’s restricted as to other types of business it can conduct on its premises. Title loan lenders can’t accept real estate as collateral, only motor vehicles.
The Risk of Repossession
The most significant risk of a title loan is that if you can’t pay back what you owe, including interest and other fees, you can lose your vehicle. Lenders have a legal right to repossess in California. Even if they don’t immediately take your car, some will stop you from starting and driving it with GPS tracking devices. Before you commit to such a loan, consider reaching out to California’s Department of Business Oversight to check on the lender’s license and any complaints that may have been filed against it.
A title loan (or title pawn in some states) simply put is a quick and convenient way for people who own their car or motorcycle to get cash. Getting a title loan or title pawn is simple. As long as you own your car or motorcycle and have its lien-free title, you can use it as collateral to get the cash you need from Car Title Loan California
A car title loan is a type of secured loan where borrowers can use their vehicle title as collateral.
Borrowers who get title loans must allow a lender to place a lien on their car title, and temporarily surrender the hard copy of their vehicle title, in exchange for a loan amount.
When the loan is repaid, the lien is removed and the car title is returned to its owner.
If the borrower defaults on their payments then the lender is liable to repossess the vehicle and sell it to repay the borrowers’ outstanding debt.
These loans are typically short-term, and tend to carry higher interest rates than other sources of credit.
Lenders typically do not check the credit history of borrowers for these loans and only consider the value and condition of the vehicle that is being used to secure it. ( we will check your credit and we make sure your income will support the title loan)
Despite the secured nature of the loan, lenders argue that the comparatively high rates of interest that they charge are necessary.
As evidence for this, they point to the increased risk of default on a type of loan that is used almost exclusively by borrowers who are already experiencing financial difficulties.
Most title loans can be acquired in 15 minutes or less on loan amounts as little as $100. Most other financial institutions will not loan under $1,000 to someone without any credit as they deem these not profitable and too risky. In addition to verifying the borrower’s collateral, many lenders verify that the borrower is employed or has some source of regular income. The lenders do not generally consider the borrower’s credit score.
Title loans first emerged in the early 1990s and opened a new market to individuals with poor credit and have grown increasingly popular, according to studies by the Center for Responsible Lending and Consumer Federation of America. They are the cousin of unsecured loans, such as payday loans. Since borrowers use their car titles to secure the loans, there’s risk that the borrower can lose their vehicle by defaulting on their payments due to personal circumstances or high interest rates, which almost always have APR in the triple digits—what are sometimes called “balloon payments”.
Alternative title lending exist in many states known as car title pawn or auto pawn as they are called. Similar to a traditional car title loan, a car title pawn uses both the car title and the physical vehicle (which is usually stored by the lender) to secure the loan much like any secured loan works, and there are the same risk and factors involved for the borrower but in most cases they will receive more cash in the transaction since the lender has both the vehicle and title in their possession.