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Media > Newsletters > Consumer Advocate > June 2013 > Car-title Loans and What You Can Lose

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Car-title Loans and What You Can Lose

When short on cash or looking for a way to supplement income, car-title loans may seem like a good option. But beware: Car-title loans may cost more than you expect.

Car-title loans are short-term loans that you secure with the title to your vehicle. In order to receive a car-title loan, you must own your car outright. The company puts a lien on the title and asks for the hard copy of the car title to secure the loan. Once you repay the loan, the lien is lifted and you receive the title back.
Car-title loans have high interest rates, and many consumers are unable to pay them back on time and must renew the loan. However, if a consumer cannot pay back the loan, the lender can repossess the car.
According to a joint study by the Consumer Federation of America and the Center for Responsible Lending, the average consumer takes out a car-title loan for $951 and renews the loan eight times. With the annual percentage rate (APR) about 300 percent, consumers end up paying about $2,142 in interest alone. One out of six loans end in repossession of a car, which has an additional fee, typically between $350 and $400. When loans end in repossession, not only do consumers have high debt, they also have lost their cars.
To avoid the high cost of car-title loans, consider alternatives such as:
  • Cutting back on expenses
  • Going to a bank or credit union for a short-term loan
  • Borrowing from friends or family members
  • Contacting your creditors to create an alternative payment plan
These alternatives may not be ideal, but they could cost you much less in the end. If you decide you need a car-title loan, make sure you read and understand the terms and conditions, including interest rates, payback dates, extension fees, and repossession costs.
More information is available in a report on car-title loans from the Consumer Federation of America and the Center for Responsible Lending. As always, if you believe you have been treated unfairly in a consumer transaction, file a complaint with the Ohio Attorney General’s Office at or 800-282-0515.