Title loan myths are presented as facts in many articles on the internet today. There are a number of articles detailing car Title Loans with inconsistent information, in many cases information that is simply not factual, outdated, or incomplete.
Many of these articles are published by large publishers, how they don’t have fact checkers read their articles before publishing is surprising. In this article, we’ll quickly touch on some of the more common misconceptions and myths about Title Loans and how they work. Topics include the time frame, the interest rate, repossessions, and other topics.
Most articles about title loans focus on why you should stay away from them. Unfortunately, title lenders have a bad reputation because of the actions of some of the larger lenders in the industry who charge very high rates and treat their customers poorly. Many of the most common myths come from previous practices of these lenders. Today, much of the information provided about title loans and how they work are simply myths.
Title Loan Myth 1 – All Title Loans must be repaid in less than 30 days.
Just about every article about why consumers should stay away from Title Loans, including one from a large publisher, states Title Loans must be repaid in 15-30 days. This is very misleading and is only true for the few states that still offer 30 day loans. Typically, these are more difficult for the borrower to repay. As a result, many states took notice of the difficulty 30 day loans placed on borrowers and instituted Monthly Term Loans. Virginia, for example, has a minimum loan term of 4 months, with a maximum of 12 months. Payments are required to consist of both principal and interest, meaning the principal balance is reduced with each monthly payment. This means these loans can be for a full year, very different than the stated “15 – 30 days”.
Title Loan Myth 2 – Title Loans have an APR of 300%.
Again, just about every article about title loans mentions an APR of 300%. While this may be true for some lenders, it is definitely not for all. And even the majority don’t charge rates that high any more. While there are a few lenders that still charge 25% per month (300% APR), it is more common to find rates much lower. Car title loans still have very high rates compared to other loans.
As an additional part of this myth, it says to borrow $1,000 with a Title Loan you will repay over $2,500. Again, this is simply not true for the many Title Loans. A 12 month loan with a 96% APR for $1,000 costs less than $600 in interest for a total of $1,600 to repay.
If the loan is paid in 1 month, it costs $80 in interest ($1,080 total). With one of the lowest rate title loans these costs are lower than most. Still, most title lenders do not charge any where near 300% APR.
Title Loan Myth 3 – All Title Loans have Excessive fees
This may have been true 10 or so years ago. Since then most states have regulated the fees lenders are permitted to charge. This has led to many of the excessive fees no longer being charged. Even in the states that allow fees, not all lenders charge them. There are exceptions, and there are lenders that still do charge excessive fees; however they are not the majority.
In the states that do allow fees not all lenders charge those fees. This is another reason why choosing your lender wisely may have a significant affect on the quality and cost of your title loan. No fees is one of the contributing factors to the best title loans. Make sure your lender does not charge fees and understand all charges.
Title Loan Myth 4 – The Title Lender would rather Repossess your Car
There is also a myth that the lender would rather repossess your car than have you make your payments. This one is simply a myth. The vast majority of Title lenders would much rather you made your payments than repossess your car.
In many states the lender is required to follow strict rules related to repossession and is required to provide the borrower with any excess from the sale of the vehicle. Lenders are in the business of making loans and collecting payments. A lender would much rather you made your payments, even late payments, than have to repossess your car. Repossessions are a hassle and nobody benefits.
Conclusion – How to Find a Decent Lender
Title loans are a unique form of short term credit using your vehicle as equity. Just like any other industry there are some companies that take advantage of customers and treat them poorly. This does not mean all lenders operate this way, or even the majority of lenders. We have a general rule to figure out if you are overpaying for a title loan. If the loan costs double or more to repay in 1 year, it is likely too much and you can probably find a better deal. For example, if a $1,000 12 month loan costs $2,000 or may to repay that is too high. Feel free to use our car title loan calculator to see interest charges for different rates.
Another way to find a decent lender is looking at minimum loan amounts and minimum loan terms. We published a post about why car title loans are short term solutions that shows how much the total loan cost increases with the term. If the lender is insisted on a high minimum with a long term, you may want to think twice. Finally, do some general research.