Car-Title Loans Cost U.S. Consumers $3.6 Billion Annually
300 Percent Interest Makes Borrowers Pay Twice What They Receive in Credit
Center for Responsible Lending
February 28, 2013
Durham, N.C.--Car-title loans cost borrowers $3.6 billion in interest each year, more than twice the $1.6 billion in credit borrowed, a new report from the Center for Responsible Lending (CRL) and Consumer Federation of America (CFA) shows. For the full report, go to http://rspnsb.li/13ZMZ8V. “Driven to Disaster: Car-Title Lending and Its Impact on Consumers,” provides the first national estimate of the size of the car-title loan market and details its potentially devastating impact on consumers.
Car-title loans are high-cost loans most often structured as a small, 30-day debt secured by the title to a vehicle owned outright by a borrower. These loans share many of payday loans’ predatory features: A triple-digit interest rate, a balloon payment at the end of the loan’s term, and—critically—a failure by the lender to evaluate a borrower’s ability to repay. Car-title loans also produce the same effect that payday loans do: A debt trap that leaves too many borrowers worse off than when they started. The new report found, for example, that one in six car-title borrowers studied faced repossession, endangering what often is often a family’s most important asset: their car. Repossession fees compound the damage, piling additional costs on the borrower that typically equal half of the outstanding loan balance.
The report also found that:
- Approximately 7,730 car title lenders operate in 21 states and make 1.7 million loans annually.
- The average car-title borrower renews a loan eight times, paying $2,142 in interest for $951 of credit.
- A typical borrower receives cash equal to only 26 percent of a car’s value, yet pays 300% APR.
These findings underscore the need for strong consumer safeguards in car-title lending. CRL and CFA recommend that states with reasonable rate caps not grant exemptions to car-title lenders, and that states vigorously enforce them, as car-title lenders often take advantage of loopholes or gaps to avoid compliance. In addition, regulators should require car-title lenders to:
- Structure this type of credit as an installment loan, with reasonable limits on interest;
- Evaluate a borrower’s ability to repay before making a loan;
- Provide borrowers with protections in case of default, such as notifying them prior to sale or repossession.
For more information, contact For more information, contact Kathleen Day in DC at 202.349.1871 or kathleen.day@responsiblelending.org; Graciela Aponte in Calif. at 510.379.5518 or graciela.aponte@responsiblelending.org; or Ginna Green at 510.379.5513 or ginna.green@responsiblelending.org.
###
About the Center for Responsible Lending
The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.