This week we’ll return to our discussion on predatory lending and discuss car title loans.
Car title loans involve cash advances in exchange for putting up your car as collateral. In order to be eligible for a car title loan, borrowers must have a free and clear title. Once they’ve appraised your vehicle’s value, the maximum loan amount is determined, generally for no more than a third or half of the value of the car, meaning borrowers are putting their vehicle at risk for a loan that is less than half of the car’s value. Loan terms are as short as one month with annual interest rates that are often in the triple digits!
In Virginia, there are a number of regulations aimed at limiting the impact of car title lenders. Car title loan interest cannot exceed 22% per month (which still equals an APR of 264%!), and loan terms must be for at least 120 days. Lenders cannot make car title loans to individuals who already have a car title loan outstanding, and car title loans cannot be extended without the lender filing the title of the borrower’s vehicle with the DMV. Payday lending companies that offer car title loans must do so from a separate location that does not offer payday loans; however, many predatory lenders have maneuvered around this restriction by creating separate locations next door to one another or in the same shopping mall.
Starting in January 2021, a number of new regulatory changes will be introduced to Virginia. Car title loans will be capped at 36% APR, and the minimum loan term will be lengthened to 6 months. Like payday lenders, car title lenders will be required to make an effort to ensure borrowers are financial capable of repaying the loan on time.
Next week we’ll return and discuss refund anticipation loans and refund anticipation checks.
Money, Health, and Other Things 
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