A car title loan or pink slip loan is a secure loan that can be availed on the car’s title that is kept as collateral by the individual seeking the credit. Those who take the car title loan have to agree to the lender placing a lien on the car title and they are required to surrender the car title to the lender till the loan is repaid. After the loan has been repaid with the total interest, the car title is returned and the lien is removed. However, in case the borrower defaults, the lender ahs all the rights to sell the car and recover the amount that was due.
As the car title loans are short term secure loans, it has a high interest rates as compared to other credit loans. As the car title is kept as collateral, the lenders do not check the credit history and only the condition and value of the car is considered. However, the dispute is about the high rate of interest that is charged. According to the lenders, the high rate of interest is necessary as the risk of default is very high due to most of the borrowers having poor credit history and financial difficulties that led them to take this loan.
As the car title loans can be processed within 30 minutes and usually 50% of the car’s value is provided as loan amount. While other lenders insist upon seeing employment identification and verifiable collateral documents to ensure that the car is not stolen or has other legal implications.
Although there are some states that consider car title loans as predatory ending practices, there are many other states that allow regulated lending under title loans. The main reasons for disallowing title loans on vehicles, is the lenders practice of high interest rates, predatory tactics on people with poor credit history who are unable to take traditional loans.
While in many states such as Montana, there was strict regulation on all title loans but in the last few years, it totally voted against the practice. Today about 20 states in US allow car title loans, namely Georgia, Idaho, Illinois, Kansas, South Dakota, New Mexico, South Carolina, Texas, Virginia, Missouri, Nevada, Delaware, California, Arizona, Tennessee and Wisconsin among others. Last year, Illinois tried to cap the APR on car title loans to 36% while limiting other applicable provisions to curb the lending practice but it was not fruitful.