Archive Links

Consumer Archive
CU System Archive
Market Archive
Products Archive
Washington Archive
150x172_CUEffect.jpg
Contacts
LISA MCCUEVICE PRESIDENT OF COMMUNICATIONS
EDITOR-IN-CHIEF
MICHELLE WILLITSManaging Editor
RON JOOSSASSISTANT EDITOR
ALEX MCVEIGHSTAFF NEWSWRITER
TOM SAKASHSTAFF NEWSWRITER

News Now

Consumer
Car-title Loans: $6 Billion Debt Trap
WASHINGTON (7/23/13)--Car-title loans have ballooned into a $6 billion dollar industry over the past decade, with $4 billion coming directly from borrowers in the form of exorbitant fees. Twenty-one states still permit this debt-trap, which puts one of consumers' most significant assets on the line (Center for Responsible Lending July 15).
 
Here's how they work. Similar to the subprime mortgage loans made at the height of the mortgage bubble, car-title lenders make asset-based loans without evaluating whether the borrower can repay the loan. The decision is made instead on the value of the collateral--in this case, the car. Typically there's no credit check, nor does the lender ask about other monthly expenses or debts. If the borrower can't make the payment, there are two choices: Get another loan, or lose the car to repossession.
 
Many borrowers end up in a cycle of debt. One recent study estimates that borrowers who take out the typical nine title loans in a year wind up paying back more than three times the amount borrowed--$3,391 in payments for a $1,042 loan.
 
The Washington Post (July 15) reports that, in Virginia, car-title loans in 2012 were up about 26% from 2011, and 20% of borrowers failed to make a monthly payment on a title loan for at least 60 days.
 
The Center for Responsible Lending cites several borrower stories, one involving a retiree who depleted his life savings to pay for his wife's cancer treatments; he then took out a 375% Annual Percentage Rate (APR) title loan on his pickup truck. His fixed income only covered the title-loan fees, not the principal. He ultimately retired the debt by taking out a loan at 16% APR through a credit union.
 
Keep these tips in mind before giving away your vehicle:
  • Zone in on the APR. Car-title loan rates range from 84% to 300% and higher. Focusing only on that "small and easy" initial fee traps many people into an endless cycle of debt.
  • Shop around. Ask at the credit union what other options are available for your situation.
  • Steer clear of all predatory loans. That includes refund anticipation loans and overdraft loans. Ask about credit union alternatives to expensive loans offered by payday lenders.
  • Boost your rainy day account. Consider automatic transfers from checking to a liquid savings account for greater peace of mind.
For more information, watch "Tough Times Series: Avoid Payday Lenders" in the Home & Family Finance Resource Center.
RSS





print
News Now LiveWire
CUNA: CUNA offices closed through Friday, News Now returns Monday http://t.co/a5xbLzQKDj
9 hours ago
Reminder: @CUNA's Madison, D.C. offices will be closed through Friday, open again on Monday. #NewsNow will publish Monday.
12 23 ago
MI dentist to match @CUDirect's $20K to @HurleyMedical as a result of #20for20 online voting http://t.co/hqmIc9LpK1 @CMNHospitals
12 23 ago
New #creditunion chartered in St. Louis - #LutheranFCU - by @TheNCUA http://t.co/faPfANGS0P. Only 3rd new FCU charter this year.
12 23 ago
Don't get hacked during the holidays-use these tips from @CUNA http://t.co/jEqxni6NhO #StoptheDataBreaches http://t.co/woIxPOIyys
12 23 ago