Cash 4 Car Loans
Cash 4 Car Loans
Driving through Broadway Ave. in Cleveland, I noticed a “cash for cars” retail site advertising cash for your car title in the form of a short term loan. Apparently these lenders are buyers of running cars, trucks and vans which are creating havoc.
How does it work? A loan outfit such as City Loan, offers loans to many of whom have a poor credit history – or no history at all. The collateral used to secure the loan is their automobile, which must be fully paid-off or close to being paid-off (with the remaining due amount in consideration) The published value and quality of the vehicle is the primary basis for this style of loan. These are typically paid via Money Gram, wire deposit, or check, at a predetermined rate of interest and an agreed upon term or length of loan period.
Those obtaining cash 4 car loans (with title) essentially are subjected to a lien on the automobile and generally are required to produce the physical title for the vehicle. The understanding is that the lender may take possession of the vehicle and sell it if the owner is unable to repay the loan amount in the established term.
These loans, since backed by the vehicle’s value, are able to be approved quickly. These lenders began in the mid-nineties and developed yet another platform for those unable to obtain credit from standard sources. According to the Center for Responsible Lending and the Consumer Federation of America: “Given the overall situation of the U.S. economy in recent years, they have become increasingly popular”. These types of lenders (including payday loan companies) recently scored a decision from the Ohio Supreme Court which allows them to sustain their business’.
According to responsiblelending.org, “The very structure of car-title loans leads to problems for consumers, including excessive repayment fees and repossessions.”
Loan Characteristics from CFA/CRL Car-Title Data:
The Median Loan Size: $845
Median Car Value (Blue Book Value): $3,150
Median Loan-to-Value Ratio: 26%
Median APR: 300%
“Lenders often utilize GPS-style tracking units to locate the car for repossession (Martin & Adams, 2012). Some even place a tracking device in the car that allows them to turn off the engine remotely. Repossession is not an infrequent occurrence; for example, fully 60% of 2008 New Mexico car-title borrowers lost their car that year to repossession.”
The bottom line appears to be that these loans, like all “loans” are a last resort option for those enduring difficult financial times. A better solution may be to simply sell the car if unable to afford it and consider alternative transportation options. Cleveland Scrap Cars neither encourages or discourages such “cash for car” title loans, but chose to report some facts relating to this market.