Despicable Debt: Title Loans

My naivete hit me like a ton of bricks: The first time I saw a “Title Loan” store, I didn’t understand exactly what it did, or what made it such a horrible thing.

I was 23 years old and visiting a popular Southern gambling destination with a couple of coworkers for a conference. As we drove toward our hotel, I noticed a several title loan institutions located right next to each other, just down the block from one of the area’s biggest casinos. “That’s funny,” I wondered out loud. “Why would you see title loan places like that next to this nice casino area?”

My boss turned at looked at me like I had a screw loose. “Seriously, Brian, you don’t get it?” he asked. I admitted that I did not. “Those stores are in this area for a reason. People come to the casinos and lose all of the money that they brought with them. The ones that can’t stop gambling bring their cars down here to get title loans so that they can keep playing.”

At that point I realized: If they gamble more and lose, they lose their cars too.

In this series, we’re talking about Despicable Debt, a class of horrible financial products and services that prey on the weaknesses and ignorance of the poor and vulnerable. Although we believe that all debt is slavery, many people get into credit card debt, medical debt, student loan debt and other kinds of issues with good intentions and for legitimate reasons. But then, there’s Despicable Debt, like title loans or payday lenders. These are places where unscrupulous lenders are taking advantage of the financially illiterate to enrich themselves. And they deserve the full heft of our scorn.

So how does a title loan place work, anyway? Well, in the strictest sense, getting a loan against your car title is something like getting a home equity loan against your home. You bring your car to the store, and they determine the value of the vehicle, and then loan you money based on how much the car is worth. (If you don’t own the car free and clear yet, the amount of money that you owe to the bank is subtracted from the amount that you can get on the title loan.) So, you get the cash, but you put up the title to your car as collateral against the loan. That means that if you fail to repay the money within a certain amount of time, the title lender has the right to seize the vehicle and sell it. In other words, if you lose your money, you also lose your car.

There are several unsavory things about how all this works. First of all, you can’t expect to get a fair valuation of your car at one of these places: Since they will want to make a profit if they ultimately have to sell your car to recoup the unpaid loan, they’re not going to give you the full value of the car in the title loan. They’re going to give you much less, in fact — if your car is worth $5,000, expect to get $3,500 or less from a title lender. That low valuation alone means that you get ripped off from the moment you do the deal, even if you repay the loan and leave with your car. If you really needed to get cash out of your car, you’d be better off to sell it on the open market, where you could at least get blue book value for it.

The second nasty element of title lending is the payment terms. You see, title lenders don’t really want to take your car and sell it to recoup their loans — that takes a lot of time and effort, and it keeps their cash tied up for too long. What they’d rather have you do is to keep your car and pay the loan off gradually, over a long time, with hefty interest payments. When you set up a title loan, the lender will give you “flexible” payment options. You don’t have to return with the full value of the loan tomorrow to get your car back. Rather, you can make small payments over time, and as long as you keep making those payments, you get to keep driving your car. But what you don’t realize is that there can be a boatload of interest built into those payments — sometimes the interest payments can be so high as to rival the 50%+ rate paid at payday lenders. If you take a while to pay off that $3,500 title loan, you could end up making a total of $5,000 or more in payments — even pushing the amount that the loan cost you beyond the actual value of your car.

The final nasty thing about title lenders, of course, is their location. It’s no accident that the first ones I encountered were located in a casino district; title lenders position themselves to “serve” people in desperate situations. What that really means is that they set up shop in places where people will do anything to get money quickly. And unfortunately, for many people with gambling problems, that can be in the middle of a casino vacation. Gambling is among one of the least advisable pastimes a person can take up its own right; combined with hasty borrowing it becomes financially toxic. In gaming destinations, title lenders take advantage of the sickness of gambling addiction and the people who are captive to it, and leave them without one of the basic necessities it takes to get by in modern life.

This isn’t really an article about gambling — that’s a whole discussion of its own — but an indictment of the title loan industry that has sprung up around it. If you’re ever tempted to get into gambling or to go visit a title lender, though, you should do the same thing in either situation: Just say no.


Photo by Paul Sableman. Used under Creative Commons License.

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