A title loan is a way to borrow money against your motor vehicle. Based
on your vehicle's value, a lender determines how much money you can borrow.
On average, title loans are $250 to $1500, but they may be as high as $5000
or $10,000. In a title loan transaction, you can keep your motor vehicle
and drive it, while the lender keeps the title to your motor vehicle as
security for repayment of the loan. Usually, the lender also gets a copy
of your keys. If you cannot make the payments on your loan, the lender
will repossess your motor vehicle, sell it, and pocket whatever money he
or she gets for it. Therefore, before taking out a title loan on your motor
vehicle, you should consider the following:
TIPS FOR CONSUMERS
The Amount You Owe
Florida law allows a title lender to charge you a "fee" up
to 22% per month on the money you borrow (see Florida Statutes, Chapter 538). This 22% monthly "fee"
over one year adds up to about 264% of the amount you borrow which must
be repaid. In contrast, interest on a credit card account is usually only
about 18% to 21% per year. The following box states the total amount you
repay on a loan for $1,000 paid off over one year at 22% per month,
|
TODAY YOU BORROW
|
$1,000
|
|
MONTHLY PAYMENT
|
approx. $300
|
|
OVER ONE YEAR YOU PAY
|
$3,640
|
Although not expressly permitted by Florida law, the 22% "fee,"
which equates with interest, has been compounded monthly by some title
lenders so that you may be charged 22% on the amounts you owe including
the 22% "fees" which you have not yet paid. Be aware that if
you cannot make the interest payments on your loan, you will end up paying
three and four times the original amount you borrowed to get back your
title.
Read the Fine Print
Read and understand the entire title loan application/contract before
you sign. You should be aware of the monthly "fee" you are being
charged, the due dates, amounts and number of payments you must make, and
the total amount of money you must pay to get back your title. You should
also be aware of the lender's practices if you miss any payment. If you
cannot make your loan payments, the lender will repossess your motor vehicle--perhaps
if you only missed one payment. After repossession, the lender may offer
you a short period of time to get your motor vehicle back if you can re-start
your loan payments. Florida law only permits title lenders to charge you
for a monthly "fee" which may be up to 22% per month. However,
despite no explicit statutory reference, some title loan lenders or
persons working in association with them may attempt to charge you
for such things like repossession and storage, before your motor vehicle
will be returned to you. These extra fees can run into hundreds of
dollars.
Consider the Alternatives
On its face, a title loan may seem attractive, especially if you need
quick cash or have a problem receiving loans from banks, savings &
loans, or credit unions. However, with a title loan you will be charged
a hefty "fee" and will run the risk that you will lose your motor
vehicle forever, which may be your only source of transportation. Instead
of a title loan, you may consider:
-
Budgeting for whatever you need;
-
Working out an alternative payment plan with the seller or provider
of whatever item or service you are taking the title loan out to pay; you
should, whenever possible, avoid taking out a title loan to pay for basic
necessities like rent or food;
-
Contacting a credit counseling service, which may be offered at reduced
rates or at no charge depending upon the city or county where you live;
-
Loans from friends or family; and,
-
Financial relief from charities or other assistance agencies.
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