Secured short-term loans from private lenders are often the only option for millions of Americans who live paycheck to paycheck. The majority of these Americans have little or no savings and do not have the credit score required by the banks. The private lenders of payday and title loans charge high rates of interest. Many lenders also levy fees initially and subsequently fines when the borrower fails to repay on time.
The Problem with Title Loans
These are usually come with a very limited repayment term. These types of loans typically have a repayment term of thirty days. There is a one-time repayment of the amount with the accrued interest. According to this resource page by Titlelo, title loans also have a similar repayment term but in some cases, the period may be extended to ninety days. A few lenders offer title loans with possible renewal terms of up to a hundred and eighty days.
While such loans are usually around a few hundred dollars, the immediate repayment in a few weeks becomes overwhelming and practically impossible for many borrowers. This leads them to a debt trap. The borrowers have to keep renewing the credit at higher rates of interest while paying the fines for late payment.
The Initiative for Change and Regulation
There have been innumerable instances around the country where different groups of activists and experts have lobbied for the states and the federal government to legislate on title and payday loans. Now churches have joined the fight against title loans and they are creating political pressure for the legislators to act and protect borrowers from predatory practices of private lenders.
Case in Point
Pastors Carlos at Iglesia Bautista Victoria en Cristo in Fort Worth, Texas, recently helped a woman who had got into default on a payday credit. The woman had borrowed three hundred dollars initially from a money store. The credit was not paid and the accumulated interest inflated the outstanding due. She was compelled to renew the credit and this brought on extra fees and more interest.
The family of the woman also had to take a title loan. They pledged the title of the car and failed to repay it. They were at risk of losing the car and some of their loans would have remained unpaid for their total debt owed to different lenders had skyrocketed to over ten thousand dollars.
The Valencia family managed to help the woman. Fortunately, she did not lose her vehicle. The woman is not alone as there are millions of Americans, most of them earning less than forty thousand dollars a year with little or no savings, who have got into a cycle of debt owing to the easily available title loans that carry enormous interest, additional fees, and possible fines. Many borrowers lose their cars and some even have to sell their homes when the outstanding debt balloons to tens of thousands of dollars.
Lobbying Against Title Loans
Various churches across many states are lobbying the local government and senators to bring in stricter laws to regulate the private lending industry. The availability of small credits at exorbitant interests is making ordinary Americans vulnerable to debt that becomes unmanageable sooner than later. Presently, most states have laws pertaining to these credits. However, some laws are more lax than others. Payday credits have rates of interest as high as 900%. The rates are rarely 300% per year or even close. Most payday credits will have a rate higher than 400% per year in every state where they are legal. Title loans do not have identical rates but they are still as high as 400% with many lenders.
While many churches are fighting against title loans with political pressure, there are some cases where such bodies are advocating for expansion of the availability of such credits. Some pastors in the state of Florida lobbied and pushed the lawmakers to permit Amscot, a payday loan company, to expand its operations. The company is understood to have been helping many people in need and this group of pastors wants more citizens to have access to easy funds in trying circumstances.
An Inconvenient Conclusion
The premise of title loans has its share of pros and cons. It is true that these present a real risk for borrowers and one may lose their car if they fail to repay. Yet, they are often the only option for borrowers to get some money when they need it the most. Had there been better options or the borrowers would have had impeccable credit histories, any kind of loan with a substantially high or exploitative interest would have been a nonstarter. The states that have extensive laws regulating title and payday loans have loopholes that need to be plugged to prevent lenders from exploiting borrowers that are in need of financial assistance.