Deal Pack Blog
Title Loans and are they for you?
The Consumer Financial Protection Bureau (CFPB) has issued a report, proving that one-in-five borrowers who take out a single-payment auto title loan have their vehicle seized by their lender as a result of failing to repay their debt. According to the CFPB’s research, more than four-in-five of these loans are renewed the day they are due because borrowers cannot afford to repay them with a single payment. The majority of auto title loans come from borrowers who end up taking out more loans to repay their initial debt. In only about 12 percent of cases do borrowers manage to pay back their loan, fees, and interest with a single payment without taking out four or more consecutive loans. This repeated re borrowing quickly adds additional fees and interest to the original amount owed. The report issued by the CFPB analyzes loan use patterns, such as re borrowing and rates of default.
Auto title loans, also referred to as vehicle title loans, are often used to cover an emergency or as a “cushion” between paychecks. Vehicle title loans are a type of credit product in which the lender takes a security interest in the borrower’s vehicle and the loan approval and amount is primarily based on the vehicle’s value, rather than a credit check and underwriting. The cost of a vehicle title loan is typically expressed in dollars per $100 borrowed, and annual percentage rates are in the triple digits. Although the borrower retains use of his/her car while the loan is outstanding, a lender can repossess and sell the vehicle to satisfy the amount owed if loan payments are not made on time. Some vehicle title loans are structured so that a single payment of the principal and associated fees are due in about a month, while others have a longer-term that are repayable in installments. However, in the report issued by the CFPB the term “vehicle title loan” is used to refer to loans with a single payment.
These single-payment auto title loans are available in 20 states. The CFPB’s study found that these auto title loans often have issues like payday loans, including high rates of consumer reborrowing, which can create long-term debt traps. A borrower who cannot repay the initial loan by the due date must reborrow or risk losing their vehicle. Such reborrowing can trigger excessive costs in fees and interest and other collateral damage to a consumer’s life and finances. With auto title loans, consumers risk their car or truck and a resulting loss of mobility or becoming swamped in a cycle of debt. The CFPB is considering proposals to put an end to payday debt traps by requiring lenders to take steps to determine whether borrowers can repay their loan and still meet other financial obligations.
Deal Pack Pro is capable of handling Title Loans within the system. Please reach out to a support representative at 1-800-526-5832 to learn more.