Title Loan Troubles: 300% APR

After going through a divorce, Sarah was ready to move on to a brighter future. She started dating someone, but the relationship was far from the new beginning she had hoped for. Her significant other soon turned abusive. Sarah was scared, but determined to find a way out. With the support of her family and authorities, Sarah was able to rid herself of her abuser and protect herself from future danger.

Sarah was finally physically and emotionally free, but she left with a pile of medical bills and court fees that burdened her finances. She was already stretched thin financially when her car started to break down and needed costly repairs. Sarah turned to what she thought was her only option to fix her car and stay employed: a title loan. What she didn’t realize was that this “helping hand” in a time of need would end up costing her 3 times the original amount loaned.

Here is the breakdown of what that looked like:

  • Sarah took out a $600 loan using her vehicle title as collateral
  • After 30 days Sarah had to pay back the $600 plus the additional $150 in interest and fees
  • She didn’t have the $750 so the company offered to “roll over” her loan for a $75 fee
  • Now Sarah owed $825 + additional interest accrued

From May 11 through August 8, Sarah had paid $592 towards her loan. Only $6.04 of that $592 went towards her principal; the other $585.96 went towards interest. After talking with Nicky, one of More Than Wheels’ financial coaches, Sarah realized that if she ever wanted to payoff this debt, she would have to increase the amount she was paying per month. Six more months and $1,221.96 later, Sarah had paid off her title loan completely.

The title loan ended up costing Sarah $1,813.96 – over three times the original $600 she needed.

Unfortunately, Sarah’s situation is not unique. According to a report by the Center for Responsible Lending and the Consumer Federation of America:

  • About 1.7 million car title loans originate every year
  • The average car title customer pays $2,142 in interest on a $951 loan and renews the loan eight times
  • About 7,730 car title lenders operate in 21 states, charging borrowers $3.6 billion in interest on $1.6 billion in loans each year
  • A typical borrower receives cash equal to 26 percent of a car’s value and pays an annual percentage rate of 300 percent

Although a title loan may seem like the only choice at times, there are other options.

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