To circumvent the restrictions on payday loans, some lenders instead offer automatic title loans. However, this so-called alternative – which is illegal in about half of the states in the country – is actually just a loan in disguise.
When you take out an automatic title loan, the lender examines your car and offers you a loan based on the value. You can usually get up to 40% of the value of the car in cash, with $ 1,000 being the average amount. You then hand over the title to the car as collateral for the loan.
Car loan loans have the same short terms and high interest rates as flash loans. Some are due in a lump sum after 30 days, while others are paid in installments in three to six months. Together with an interest rate of 259% or more, these loans also include fees of up to 25%, which are payable with your final payment.
If you cannot make this payment, you can renew the loan, just like a payday loan. In fact, the vast majority of these loans are extensions. Pew reports that a typical title loan is extended eight times before the borrower can pay it. So just like flash credits, automatic title loans capture their users in a cycle of debt.
However, if you cannot afford to pay or renew the loan, the lender will confiscate your car. Many lenders let you turn a key or install a GPS tracker to make it easier for them to get hold of the vehicle. Some even save the car while waiting to sell it – and charge for storage. And if the amount they get when they sell the car is more than what they owe you, they don’t always have to pay you the difference.