What Are Title Loans?
Title loans are short-term loans that allow cash-strapped North Carolinians to use their vehicles as collateral. While the loan amount depends on the value of the vehicle, the maximum amount may not exceed the state limit of $1,250. These high-interest rate "evidence of indebtedness" loans are repayable in the following month, and a borrower can only have one outstanding car title loan at a time. Further, although they are issued by lenders, they are regulated under North Carolina law.
In addition to your vehicle’s title, you must provide the lender with your driver’s license and an application fee and make monthly interest payments in order to receive a car title loan. The lender can repay your loan using your titling services agreement if you default on the loan . In this contract, you will sign over your vehicle title in exchange for the loan amount. The lender then files the new title application on his or her own, as opposed to you having to go through the Department of Motor Vehicles on your own.
Because these loans occur between a private lender and a borrower, there is no waiting period to receive the money. To get started on a loan, you need to make an appointment with your lender. On the date of the appointment, you will need to bring the required materials to the meeting. You must provide your driver’s license and a copy of your vehicle title, which will bear your signature, along with $15 for the application fee. If your information checks out, the lender will then look up your vehicle’s value on Kelley Blue Book to determine how much cash you qualify to receive.
Is a Title Loan Legal in North Carolina?
In North Carolina, the law does not permit title loans. N.C.G.S. 53-168 (a) and North Carolina Administrative Code 04 NCAC 3D.1001-4 prohibits loans based on security interest in vehicles or motor vehicles. The section states that "no person shall offer or make any vehicle title loan or motor vehicle title loan for personal, family, or household purposes." A "vehicle" is defined as "an indoor or outdoor trailer, semitrailer or other mobile equipment that was not designed to be used primarily as a dwelling unit" and "motor vehicle" is defined as "a passenger vehicle designed for highway use that is subject to licensure in this State." (N.C.G.S. 53-168 (c)).
The limitations are very broad and apply to all secured loans based on security interest in a vehicle or motor vehicle. Non-title loans secured by security interests on vehicles and/or motor vehicles are still permissible. For example, small dollar cash loans without a title may be made for motor vehicles or require a lien on a motor vehicle. Secured loans on titled vehicles and/or motor vehicles are prohibited, however, if the lender accepts payment information in connection with the loan, the lender is required to report the loan to a state repository such as the Office of the Commissioner of Banks’ Consumer Finance Division database.
Regulations On Title Loans
In North Carolina, title loans are part of a subset of consumer financial products that fall under the North Carolina Consumer Finance Act (NCFA), as described above. The maximum annual percentage rates (APR) and related fees for auto title loans are, however, set under by special provisions of the NCFA.
The lender may charge fees at an annualized rate of not more than 36 percent to the extent that the fees and interest charged do not exceed the lesser of: (1) the difference between the amount financed as determined pursuant to G.S. 24-1.1(a) and G.S. 24-1.1(c1), which can be the amount financed plus any precomputed charges that equal 36 percent per year of the amount financed, or (2) 36 percent of the amount financed, and a party to a contract or loan agreement under this section may not contract or agree to charge or receive or collect interest or compensation in excess of that allowed by this section. The interest, fees, and charges permitted under this section are in lieu of accepting assets as security for the loan.
The maximum principal amount of the loan shall be $4,000; the maximum loan term shall be 120 days; and the maximum lender charges and other costs shall not exceed 15 percent of the first $1,000 financed, 10 percent of the second $1,000 financed, and 5 percent for amounts over $2,000.
What Are the Alternatives to Title Loans?
In North Carolina, a short-term loan lender must have a consumer lending license. It is important to verify whether the lender has the required license. If not, the lender may be engaging in an unfair practice. North Carolina law provides for protection against unfair practices.
Another option for short-term loans is through banks or credit unions rather than title loan lenders. Generally, a bank or credit union will charge a much lower interest rate than a loan from a title loan lender.
Local or state government may provide other short-term loan options. Some religious institutions , supported by donations, provide financing.
Nonprofit organizations may also offer loans. However, it is important to note that some of the loan programs offered by nonprofit organizations may be provided in affiliation with a specific religion or community. Prospective borrowers must be sure they qualify for the program and be aware of any limitations there are to obtain the loan.
Other government programs may exist. For example, a local government in North Carolina may have a program to assist employers in obtaining a loan if the employer will help increase employment in their area.
Risk of Using Title Loans
However, there are still risks associated with all types of loans, especially if the loan defaults. For one, if you default on a title loan and cannot afford to pay it off, you may lose your vehicle. If you do not own your vehicle outright, you will have even more problems. Another problem with the way in which title loans are made is that they usually carry extremely high-interest rates. Depending on the state in which the loan is made, the interest rate may be well over 600%. That means that you can end up paying thousands of dollars well after you have paid for the cost of the vehicle you are buying.
Due to the high-interest rates of these types of loans, it is recommended that you avoid getting a title loan at all. Only get a title loan as a last resort for short-term borrowing. It is always better to apply for a regular payday loan or to borrow from a credit card company. Moreover, you can also consider getting a small personal loan from your bank at low-interest rates, or using your savings for such purchases. If your credit is bad, you can try to find a co-signer for the loan.
Reporting Illegal Acts
If your lender violates North Carolina law or engaged in predatory, deceptive, or otherwise illegal practices, you should report it to the North Carolina Commissioner of the Department of Insurance (the "Commissioner"), as well as to the Better Business Bureau and your credit-reporting agency.
Under North Carolina General Statutes, title lenders must be licensed by the Commissioner. You can check if a company is licensed by the Commissioner online here—just click on "License Lookup" and enter either the name or license number you obtained from your loan documents. If a company is not licensed, then it is violating North Carolina law. The Commissioner also enforces many of the other laws governing title loans in North Carolina.
Online complaints must be submitted using the Commissioner’s online complaint form and appear by clicking here. In rare circumstances you may request an exemption or waiver from the secured loan law . Any such request must be in writing to the Commissioner’s office in Raleigh.
The Better Business Bureau has the primary purpose of receiving complaints from consumers and forwarding the complaints to the business to which the complaint is allegedly directed. The Better Business Bureau then provides a report to the consumer regarding how the complaint was addressed by the company. You can file a complaint on the website of the Better Business Bureau. The Better Business Bureau forwards all complaints to the company requesting their response.
You also are entitled during normal business hours to request your credit report from each of the three major credit reporting agencies at no charge to you. You can get a free copy of this report every 12 months. This information is critical to your ability to catch and alert the credit reporting agencies to any activity that should not have occurred on your credit report. Between credit reports, you can check for errors by purchasing a report.
