Lenders offering fast cash at high interest rates are setting up shop in towns throughout the U.S. Customers seeking short-term loans and willing to pay an APR of 200 to 500 percent are flocking to them. Competing lenders are not happy, and not only for selfish reasons. Some say that their customers cannot afford more loans and additional interest.
Established short-term lenders believe that interest rates offered by new stores will be higher. They also worry that their current customers will be hurt by new providers of secured loans. It is one thing to miss a signature loan payment. It is quite another to miss a payment on a loan secured by a car title. The result could be repossession of the vehicle, with no way to get to work.
To get a car title loan, a customer supplies a clean vehicle title, proof of income, verification of liability insurance, and extra car keys. In exchange, the individual receives a loan representing about 25 percent of the Kelley Blue Book value for a three to 30-day period. Lenders will not hesitate to repossess the vehicle if the loan is not repaid.
Consumers applying for payday loans must have an active checking account and regular direct deposits. They provide the lender with a pre-written check as security. Signature lenders make it clear that they are in a different class than these outfits. They accuse payday lenders of being out to gouge customers.
Many people do not understand the terms of car title or payday loans until it is too late. With varying terms and conditions, it can be difficult to compare rates. Adding to the confusion is the ability to roll the loan over to a new term. Some customers end up paying for a small loan for several years without even touching the principal balance.
