Auto title loans have become the new source of emergency funds for cash-strapped individuals, especially in the current economic climate. However, many are discovering that once ensnared, they often find it difficult, if not impossible, to extricate themselves from the vicious cycle a title pawn can engender, without either losing their vehicle or coming up with more cash than they can afford.
What is a Car Title Loan?
Car title lending is a transaction, usually no longer than 30 days, in which a pawn broker makes a loan against one's lien-free vehicle, offering cash in exchange for the title, which is held as collateral against the vehicle. Many states allow high-interest car loans, and a borrower can pay as much as 25% interest or more per month, which can add up to over 300% interest in a year's time. If the loan is not paid back within the 30-day period, the lender can either repossess the vehicle and sell it, or may roll the loan over for another month, which means an additional interest payment on top of what is already owed.
These loans are considered abusive by many because they target the poor, the elderly, and those with credit problems who are unable to obtain a loan from a bank or credit union. According to Carrie Teegardin in the January 25, 2009, Atlanta Journal Constitution article "Title Loan a Disaster for Couple; Lax State Laws Blamed," "only 18 states allow similar high-cost loans to borrowers who surrender their car titles", and that "in two states only, Alabama and Georgia, is the transaction conducted as a pawn".
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