When people think of car title loans, much like payday loans, there tend to be certain demographic stereotypes which come to mind. Most people would assimilate a title loan with large metropolitan areas focusing in on the low income areas.
In 2005, there was a study done in Cook County Illinois to gather as much possible information on car title loans based on public information. Chicago is located in Cook County and naming the city gives a reader a better idea on the demographic region represented in the study. There were no more recent findings posted, but knowing how today's society has people living paycheck to paycheck and carrying much larger debt figured, one can only imagine the increase in numbers for the following tidbits of information.
* There were 260 storefronts located in Illinois. These stores were run by 63 different title loan companies. Chicago is a major metropolitan area with extensive public transportation opportunities. The bus and train systems set up in cities like Chicago have been helping residents meander through the city and surrounding communities. It is interesting how that even within this metropolitan area, so many title loan companies not only exist, but thrive.
* The median (average) loan for this area in 2005 was $ 1500. The median finance charge was $ 1536 with an average APR of 256%. It is not surprising to me that people were paying more in finance charges than they were loaned. If paid off on the original due date, typical loans would charge 25% interest and the full payment would be $ 1875 rather than $ 3036. Adding a title loan will prove to be quite cost in 2013 as well.
* The high cost of these loans was due to people only paying fees each month and not paying down the actual principle. In 2005, 21% of loans were taken out to payoff past loans. This "cycle of debt" continues to thrive within problematic finances and short-term loans are often used in order to payoff previous ones. Whether taking out a payday loan or car title loan, a borrower will want to have a plan to pay off the debt in a reasonable amount of time to keep the final cost of the loan from skyrocketing.
* Sadly, in 2005, 18% of car title loans asserted in the vehicle being taken as collateral for a defaulted loan. Living in Cook County, residents at least had a supportive public transport system to help support the loss of a vehicle. Those living in smaller areas will end up spending more for taxis or lose jobs and educational opportunities due to lack of transportation.
* If a person was brought to court due to the defaulted loan, the median cost of damages owed was well over 3 times the initial loan amount. Between principal balance, fees, interest and court costs, a short-term loan turned out to be quite damaging.
* Most borrowers often failed to report to court in 2005 which automatically replied in a default judgment against them. Show up to your court date no matter what in order to have even a small chance of any leniency in your case.
I share these facts of 2005 as just a reminder that car title loans have remained quite similar to years of past. Fees, interest and cycles of debt continue to occur. What has now changed is the opportunity for more business to open new store locations as well as offer online title loans as well. As with any type of third party money, you will want to have a payoff plan to prevent falling into any kind of long-term debt.