What You Should Know About Title Loans in Texas
Title loans in Texas are advertised as a quick and simple way to get cash. However, it is possible that you will end up in debt and without a vehicle as a result of this decision.
According to the Texas Office of Consumer Credit Commissioner, nearly 240,000 Texans took out auto title loans in 2020. They had to pay fees totalling more than $570 million. Alternatives may be more costly, but they do not require you to sell your car in order to obtain the funds you require.
How do Texas title loans work?
A title loan is a loan that is secured by collateral. This is the title to your vehicle in the case of a car title loan.
Because they are based on the value of the vehicle rather than on income or credit scores, auto title loans are very popular. These loans are simple to obtain and cost around $1,000 on average.
A title loan may be a viable option if you’re short on cash or have been turned down by a credit union, bank, or other lenders.
Texas Car Title & Payday Loan, for example, provides loans in the Lone Star State both online and over the phone. On the other hand, the APR can reach triple digits. Your car may be taken away if you default on the loan.
Why are title loans in Texas so expensive?
In Texas, lenders are not allowed to charge triple-digit APRs. According to Susan R. Ramirez, a public interest nonprofit based in Austin, the store’s go-to for a car-title loan is not a lender.
The storefront acts as a middleman between the borrower (or lender) and the customer. It issues two contracts, one for the loan and the other for the service, both with uncapped fees. They’re known as credit access businesses or CABs. We’ll go over the dangers of title loans and how to avoid them in the sections below.
Different types of title loans
There are two types of title loans: secured and unsecured.
Borrowers who take out a single-payment title loan must repay the loan in one lump sum, usually within 30 days.
An installment title loan has a longer repayment period and higher fees. Texans preferred installment loans over single-payment loans last year. This could be because the borrower only makes one payment until the loan’s principal is due on the final bill.
Payday loans vs. title loans
Payday loans are sometimes available in the same places that title loans are. The type of collateral required is the main difference between title loans and payday loans.
Both loans are secured by real estate. A postdated check or a bank account debit authorization can be used to secure a payday loan. The title to the vehicle can be used to obtain an auto title loan. Both are also extremely expensive borrowing options.
Title loans are a risk in Texas
Title loans can be harmful to your health in the same way that french fries are. Around 37% of Texans who took out a loan last year were unable to make timely payments and had to restructure their debt at least once. Some people had their debts refinanced ten times or more.
Regardless, according to Ramirez, many Texans lose their vehicles. “We see a lot of people who lose their cars because they borrowed twice as much.”
The towns of Texas are fighting back against title loans
At least 45 Texas cities have passed laws restricting the number of auto title loans that can be obtained. These laws also restrict the number of refinances that can be done as well as the amount of money that can be earned. Whether the loan is an installment loan with four total payments or a single-payment loan with three rollovers, each payment must reduce the principal by 25%.
“We’re a big state,” she says. According to Ramirez, we also have a large low-income population, a large population with poor credit scores, and an unbanked population. “We have a lot of diverse communities in Texas,” Ramirez said, “and historically, high-cost, often predatory loans have disproportionately targeted communities of color.”
Alternatives to Texas Title Loans
Although it may appear that you have few options if you have bad credit and need money fast, the majority of these options are suitable for people of all credit types. Even if you don’t have the time, shopping around now can save you money.
If you can’t wait and need a Texas title loan now, you should seek financial or credit counseling. This will provide you with personalized advice as well as a debt repayment strategy. The National Foundation for Credit Counseling is a fantastic source of information. (We’ll come back to the NFCC in a moment.)
Credit union loans are a type of loan that is offered by credit unions
Despite the fact that membership is required, a credit union may be willing and able to help people with less-than-perfect credit. Joining a credit union may also be easier than it appears.
Auto refinance loans with a cash-out option
Credit unions may offer cash-out auto refinance loans at a lower rate than other lenders. Despite the fact that there are several reasons to avoid this type of loan, it is a way to borrow money against the value of your car. Credit union personal loans are frequently less expensive than those offered by online lenders or banks.
Personal loans are available from a number of different lenders. Collateral is not required in these cases. They do, however, place a significant amount of weight on your credit and income. There are personal loans available for people with bad credit. However, you should be aware that high rates are possible.
A home equity loan is a type of loan that allows you to borrow money against your home’s value
You could take out a loan against your car instead of taking out a loan against it. Home equity loans are less expensive than title loans, and they are available to people with bad credit.
All major credit cards are accepted
Despite the fact that credit card interest rates can be quite high, they are usually less expensive than a title loan. Based on your credit score, you can look for a credit card.
ARE YOU STILL IN NEED OF MONEY RIGHT NOW?
If none of these suggestions work, it’s time to examine your overall financial situation.
If you’ve been turned down by several lenders, according to Bruce McClary of the National Foundation for Credit Counseling, it’s worth looking into why and deciding whether or not to borrow.
Contact your creditors if you’re having trouble paying your bills. Seek financial counseling from an organization like the National Foundation for Credit Counseling.
What should you do if you’re turned down for a title loan in Texas?
Here’s how to pay off a title loan quickly if you have one.
If you believe the title loan company has charged you unfairly or has engaged in unethical business practices, these organizations can help.
• Texas Consumer Credit Commissioner’s Office
• Texas Attorney General’s Office
• Legal assistance to the US Armed Forces
• Bureau of Consumer Financial Protection
• Texas’ political representative
•The rights of servicemembers are safeguarded
Texas is home to 15 military bases. You may be eligible for protection if you are a member of the United States military, or if you are married to or dependent on someone who is.
The Military Lending Act (MLA) applies to title loans, limiting APRs to 36 percent for active military personnel and their dependents.
The Service members Civil Relief Act (SCRA) allows service members to lower the interest rate on their pre-service loans by up to 6% per year.
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