If you live or work in Alabama, you may occasionally take advantage of auto title loans or paycheck advances to help make ends meet between pay periods. While these loans can provide a much needed financial boost to get you through a dry patch, if you fall behind during the repayment process, it could be hard to catch back up without an additional cash influx. However, this process could soon be changing to help make title loans more affordable to all Alabama residents and visitors. Read on to learn more about the title loan process, as well as the potential changes coming to this process.
What is a title loan?
A car title loan is a type of short-term loan that is often compared with payday loans. But unlike payday loans -- which provide you with temporary cash in exchange for a post-dated check or an agreement to allow the lender to withdraw funds from your bank account -- title loans use your vehicle as collateral. When you take out a title loan, you'll provide your title to the lender in exchange for a loan of up to a certain percentage of your car's value.
Once the loan is repaid, you'll receive your title back. If you fail to repay or renew your loan within the prescribed time period, you'll forfeit the right to your vehicle's title, and the lender may be able to repossess your car quickly.
Depending upon the dollar amount of the loan and the creditworthiness of the borrower, the lender may opt to place an unobtrusive GPS device somewhere on the collateral car to assist them in locating it if repossession becomes necessary. Other lenders could require you to provide them with a spare set of your keys, to be returned when the loan is fully paid.
Title loans are often a better option than payday loans for those who are in need of quick cash and don't have a reliable income, but do have a car.
What laws governing the title loan process may soon be changed?
Despite the benefit they provide to a wide swath of individuals who might otherwise incur disconnect fees or other charges, title loans have long been the subject of controversy among consumer advocacy groups. This may be set to change soon -- although a bill poised to cap interest rates for title loans didn't quite make it through the most recent legislative session, it garnered enough support that it's likely to be attempted again next year.
The proposed law would have capped interest rates for title loans at a maximum of 36 percent APR -- a rate so low that most title loan companies admit they could not survive. However, these companies (and their lobbyists) were receptive to working with legislators and consumer advocacy groups to find a middle ground.
Meanwhile, recent proposed payday and title loan reforms from the Consumer Financial Protection Bureau (CFPB), a federal watchdog agency, may help force a bit more downward pressure on interest rates. These proposed regulations would require lenders to perform more due diligence when it comes to evaluating a specific borrower's ability to repay a loan, as well as limiting the amount of times a borrower is permitted to "roll over" or renew a loan (to avoid defaulting). Because these changes would naturally weed out some of the higher-risk borrowers, title lending companies may be able to lower their interest rates in response.
It's important to be aware of potential title loan regulations coming down the pike -- particularly if those changes could affect your ability to qualify for a title loan or save you money in interest.
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