Title Loans do have a negative stigma. There are plenty of articles detailing the evils of title loans. It is important to point out that many of these articles are written by credit card affiliates.
In fact, there is often an advertiser disclaimer at the beginning of the article claiming that they are compensated by credit card companies. Most “Title Loan Alternative” articles have a Credit Card cash advance as one of the main alternatives.
It is no surprise that credit car affiliates do their part to steer title loan customers to their advertisers in an attempt to generate business.
With that said, title loans are high interest loans. They are for a very specific purpose and can cause financial problems when misused.
Additionally, some, not all, title lenders have behaved unethically in the past. Title Loans did not earn a negative stigma because they are all great; some have caused a significant amount of negative consequences for many borrowers.
We recently published a brief article about title loan myths, and will go a step further in this article to discuss why they have a negative stigma, and show that it is the particular Title Lenders, not the loan itself, that has earned the negative stigma.
As with all other loans, title loans have pros and cons associated with them. For some people they are a tremendous help, and for others they become an unmanageable burden. It all depends on the specific situation, and perhaps, more importantly, the loan terms.
Title Loans are an important source of funds for many
For many of the population who do not have readily available access to credit, or a significant amount of money saved, title loans are an important source of funds when they need it most.
Many title loan customers do not have access to other sources of funds. It is very easy to say “get a credit card cash advance” as an alternative to a title loan.
This, however, requires both available credit and a credit card that will allow a cash advance for the amount needed. Many cards limit the cash advance amount to a fraction of the credit line.
This assumes the borrower has available credit to begin with. In most cases this is simply not an option for many title loan customers. So, what next? For many a title loan is next.
Title Loans – Why the negative Stigma?
The answer to this is quite simple, yet a bit depressing as well. Most people looking for a title loan have no other option and are in a situation where they need cash immediately.
Many times it is for an emergency, sometimes a loved ones medical or legal bill, and scrutinizing a loan agreement is the last thing on their mind. They want to solve their immediately problem, and will figure out the costs later.
This is human nature. So, we have a borrower in desperate need of funds quickly, with no other option, under tremendous emotional stress. Enter the predatory lender.
The Perfect Opportunity for Predatory Lenders
A borrower in desperate need of funds quickly, with no other option, under tremendous emotional stress is the perfect opportunity for a predatory lender.
This is how many title lenders built their businesses. It is also how title loans gained the negative stigma they carry today. Predatory lenders saw an opportunity to exploit emotionally and financially distraught individuals with no other option, and id so for decades with little or no repercussion. Sadly, many continue to today.
Most of these customers sign loan agreements without reading and fully understanding them, and end up paying an unreasonable amount of interest and fees.
So, are Title Loans bad?
The simple answer to are title loans bad is: It depends on the loan terms. The loan terms depend on the lender, although they can vary quite a bit even within the same lender. We have seen some of the larger lenders charge a wide range of rates. This also depends on how you define a bad title loan.
All title loans are expensive when compared to most other loan types (except for maybe PayDay loans in some cases). So, does the fact that a loan is expensive make it bad? This depends on your specific situation, how long you will keep the loan, and what you are willing to pay for the loan. In many cases, it is not knowing what the loan costs that causes the problem.
What makes a Title Loan Bad?
To determine what constitutes a bad title loan, we will take a look at the most important factors that make up the loan costs, starting with the interest rate; followed by the fees. Transparency is often lacking from title lenders, especially their advertising.
Even the lenders that claim to be transparent advertise rates and terms that are misleading. Typically we have to rely on title lenders for information about title loans, although the Federal Trade Commission has started to provide information online to educate consumers about title loans.
Are Title Loans Bad – How much is too much?
The first factor when determining the validity of a title loan is the interest rate. The interest rate will define the amount you need to pay to borrow the principle. When combined with the fees and principal payments, this is the total loan cost. It is not unusual for some with a $2,000 title loan to end up paying $5,000 or $6,000 before all is said and done.
This, in our opinion, is not a good title loan and should be avoided at all costs. As general rule of thumb, if it costs double or more for a 12 month loan in our opinion that is simply too much. In other words if it costs $4,000 or more for a $2,000 loan, that is not reasonable. Are Title Loans Bad? If they cost $6,000.00 to borrow $2,000.00, then yes.
How could someone agree to such negative terms?
If you’re like us, you may be thinking how could someone agree to a $2,000 loan that costs $6,000 to repay? Well, remember, the borrower was under serious emotional stress, with and emergency financial need, when he/she took out the loan and likely did not realize what the actual costs were.
Visit some of the large title lenders’ websites and try to figure out what they charge. Give them a call and ask what they charge. You’ll find it very difficult to get a straight answer. This is why we created our Title Loan Calculator. It gives each of our customers a real time estimate with a payment schedule. Most lenders will not provide this type of information.
Are Title Loans Bad – Title Loan Fees
The next factor to consider when determining whether a title loan is ok are the fees. The only fee that should be associated with a title loan, in our opinion, is the lien fee for the actual costs of the lender recording the lien on your title.
This is a fee they have to pay, and it is not unreasonable for them to recoup this fee from the borrower. Lien fees vary from state to state, but are usually not expensive.
Loan application fees, loan origination fees, processing fees, convenience fees, and others are probably not reasonable. Make sure you get a detailed list of all fees associated with your loan and an explanation of what they are. If the fees add up to a significant amount of the loan costs, you may want to consider another lender.
One easy way to determine the actual cost of a title loan is a Truth in Lending Statement. These are designed to show the actual cost of credit, in both APR terms and actual dollars.
Learning how to read a TIL statement is important to answering the question, Are title loans bad?. If they cost more than you can afford to repay, you should find an alternative.
Are all Title Loans bad?
Absolutely not. As mentioned, for some people they are extremely helpful when no other option is available. It is not the loan itself that is the problem, it is the lender.
If you find yourself reading a loan agreement with excessive interest rate costs and fees, simply leave and choose another lender.
Good Title Loans from Good Lenders
The good news: There are lenders now charging reasonable rates, with no fees, providing alternatives to the lender who gave the entire industry a negative stigma.
Fast Title Lenders has gained a reputation as the best place to get a title loan by doing just that. If you have a less expensive option than a title loan than our advice is by all means take it.
If a title loan is your only option, don’t rush to your nearest lender and sign an agreement without understanding the costs. Take at least a little time to find a reputable, reasonable, lender. You will be glad you did.