What is a title loan?
A title loan is when you give your car title to a pawnbroker as collateral for a loan. If you fail to pay back the loan and interest in time, the pawnbroker can repossess your car immediately. The length of a title pawn loan is 30 days. The loan can be extended in 30-day increments if both you and the pawnbroker agree.
These types of loans are dangerous. They have very high interest rates and can lead to you losing your car. If you borrow $500 and the pawnbroker charges you an interest rate of 25% per month, at the end of the month you will owe $625. If you extend the loan for another 30 days, at the end of the second month, you will owe $750. Extend for a third month and you will owe $875. The majority of people who take out title loans cannot repay the loan in the first month. In fact, the average person will extend the loan eight times.
One in five people who take out title loans will have their car repossessed. If you cannot pay, the pawnbroker owns your car. If they sell it for more than you owe, the pawnbroker gets to keep that extra money.
Back to top
What are my rights and responsibilities?
Although it is not recommended, if you own your car, you have the right to pawn your car title. If you do, you are responsible for paying back the loan, plus interest, within the 30 days.
If you fail to pay back or extend the loan, the pawnbroker can immediately repossess your car. If the car is repossessed, you will have 30 days to get your car back. To do that, you must pay:
The loan amount, plus interest and fees,
The cost of the repossession (up to $250),
Storage fees ($5/day),
Any other fees for the handling of the car.
If you cannot pay within 30 days after your car is repossessed, the pawnbroker can sell your car and keep all the money, even if it is more than what you owe.
Back to top
What are the pawnbroker’s rights and responsibilities?
Pawnbrokers may not charge you more than 25% interest each month for the first 3 months. After 3 months, they can charge 12.5% interest per month. This means that your maximum yearly interest rate is 187.5%.
When you pawn your title, the pawnbroker must give you a written statement that says:
“Failure to make your payment as described in this document can result in the loss of your motor vehicle. The pawnbroker can also charge you certain fees if he or she actually repossesses the vehicle.”
If you fail to pay back your loan plus interest and fees, the pawnbroker has the right to repossess the car immediately. So, if your payment is due on Thursday, the pawnbroker can legally take your car on Friday. The pawnbroker has the right to:
Seize your vehicle at any time,
Without notice, and
To come on your property to seize the vehicle. A pawnbroker can take a car out of your driveway, but may not take a car out of your garage.
The pawnbroker can seize the vehicle as long as they do not “breach the peace.” Breaching the peace generally means the pawnbroker cannot trespass, use force, damage other property, or threaten you to repossess your vehicle.
After repossession, the pawnbroker can sell your car and keep any profit.
Back to top