By Kathy Sweedler
Interest rates on loans vary tremendously. For example, the benchmark 30-year fixed-rate mortgage loan rate is 4.01%, according to Bankrate’s recent survey of large lenders. In contrast, a vehicle title loan’s annual percentage rate is often over 200%!
What is a title loan? Auto title loans are high-cost, relatively small dollar loans. A person’s vehicle serves as collateral for the title loan. If a title loan is not paid on time, then the car owner risks losing their vehicle, and transportation to work, health care, and other daily needs.
A recent report from the Woodstock Institute and Illinois Asset Building Group, “No Right Turn: Illinois’ Auto Title Loan Industry and its Impact on Consumers,” describes the challenges of title loans. In 2013, the average annual percentage rate (APR) charged on a title loan in Illinois was 234%, with an average loan time period of 18.6 months. On average people borrowed $1,089 and paid over $3,000 in fees on these relatively small loans. In 2013, 100,698 title loans were made in Illinois.