At one point or another, you’ve probably seen an ad for a title loan. Lenders emphasize how quickly and conveniently you can obtain money, and that you won’t even need to authorize a credit check. For many cash-strapped consumers, title loans seem like the best possible solution to their money woes.
Of course, the adage “if it seems too good to be true, it is” certainly applies when it comes to the title loan industry. Read the fine print on these title loans and you’ll find that the interest rates are extremely high, with the average APR being 300 percent. That means if you get a title loan for $1,000, you’re paying $250 per month in interest. And if you can’t pay off your loan, the lender can repossess and sell your car.
How do these title loan companies stay in business, and exactly how much is that business worth? We took a look at the numbers to find out.
The Worth of the Title Loan Industry
Despite their fees, there is a huge market for title loans, and over 2 million consumers in the United States borrow title loans every year. The average amount of a title loan is $1,000, and borrowers pay an average of $1,200 in total fees for those loans. Add it all up, and title loan companies make approximately $3 billion per year in fees.
The Biggest Players in the Title Loan Game
While there are title loan companies across the nation, three stand out as the largest.
TMX Finance, which is the company behind TitleMax, is the biggest, as it has nearly 1,500 TitleMax stores spread out across 18 states. It also has brands under the names TitleBucks, EquityAuto Loan and InstaLoan, and it employees over 4,300 people. Somewhat ironically, TMX Finance went through loan issues of its own when it was unable to repay $165 million that it borrowed from Merrill Lynch in 2009. That led to a Chapter 11 bankruptcy filing, but the company regrouped and went on to expand quite a bit.
Community Loans of America has many stores around the Southern and Midwest regions of the United States. Its brands include Carolina Payday Loans, Illinois Title Loans and Fast Auto Loans. Across over 200 stores, Community Loans of America employs about 1,800 people. It also hasn’t been without its troubles, in the form of class-action lawsuits alleging predatory lending to members of the U.S. military.
Executives of Community Loans of America branched off in 1998 to create Select Management Resources. Its brands include Atlanta Title Loans, LoanMax and North American Title Loans. The company has approximately 200 stores spread out over 21 states.
The Success of Title Loan Companies
The reason title loan companies make so much money is because of their high interest rates. But why do they charge so much, and why are people willing to pay it?
Title loan companies are able to charge the interest rates they do because they issue loans to people that don’t have many, if any, other options. The vast majority of title loan borrowers have low income and low credit scores, so they’re unable to obtain loans from other lenders, such as banks or credit unions. They also may need money quickly, and a title loan is one of the fastest loan options on the market.
Title loan borrowers typically either don’t realize how much they’re going to end up paying, or they’re getting a title loan as a last resort because they have no other options.
The Future of the Title Loan Industry
Title loan companies have attracted a significant amount of criticism from consumers and lawmakers, and many states have even outlawed title loans entirely or placed heavy restrictions on them. The industry is thriving right now, but it’s very possible for that to change in the future.