That's the title of this new report about car-title loans authored by the Center for Responsible Lending and the Consumer Federation of America. Car-title loans are small loans secured by the title to the borrower's car. According to the report, each year, consumers pay $3.6 billion in interest on these loans for only $1.6 billion in actual loans. As the authors put it, "[t]hese products share many of payday loans’ predatory features:
triple-digit interest rates, balloon payments at the end of the loan’s
term, and—critically—a failure by the lender to evaluate a borrower’s
ability to repay. Car-title loans also produce the same effect that
payday loans do: A debt trap that leaves too many borrowers worse off
than when they started."
Here are the report's key findings:
- Approximately 7,730 car-title lenders operate in 21 states costing borrowers $3.6 billion in interest on $1.6 billion in loans.
- The average car-title borrower renews a loan eight times, paying $2,142 in interest for $951 of credit.
- A typical borrower receives cash equal to only 26 percent of a car’s value, yet pays 300% APR.
If you don't want to read the whole report, read the executive summary.