News & Resources

Despite demand, title loans may be risky for lenders

Jun 01, 2012 Philip Burgess

When an unexpected expense, such as a medical emergency, arises, consumers who have not saved enough must often look toward an alternative finance source for fast cash. Loans from short term lenders or pawn shops are often popular means of achieving this sum. However, title loans are also becoming more favorable for consumers in a bind. Companies face uncertainty Many people are choosing to forego putting up their next paycheck as collateral, instead giving a lending company the rights to their vehicle, should the person default. However if the consumer fails to pay back the sum, the company would have to assume the responsibility of selling the car if they hope to see cash again. According to Central Illinois newspaper The Pantagraph, loans in which an individual's car title is used as collateral are often risky for the company lending the money. This is partly because of calls to cap the interest at 36 percent, which lobbyist Steve Brubaker told the source would end up putting an end to many companies. Brubaker asserted that 36 percent interest on a title loan is often not enough to cover the overhead expenses for a business. Growth despite risk Many companies, because of the uncertain times plaguing American consumers, are beginning to offer these types of borrowing options, despite risks. For example, the Mississippi-based All American Check Cashing company recently decided to add title loans to its long list of services. The president and CEO of the company indicated that because of the success the firm has seen, particularly in the check cashing and short term loan industries, he believes loyal customers will be attracted to borrowing against their car title. Other companies are opening new locations in anticipation of a rush to pursue title loans. For instance, a new store for Denny's Title and Pay Day Loans recently opened in Lake of the Ozarks, Missouri, Lake News Online reported.  It is important for a firm in the lending industry to consider the risks and rewards of choosing to break into the realm of car title loans. Lenders should consider doing some market research to see if offering title loans would be in their best interest, asking if nearby consumers would take advantage of the offerings.