When people think of car title loans, much like payday loans, there tends to be certain
demographic stereotypes which come to mind. Most people would assimilate a title
loan with large metropolitan regions focusing in on the low income areas.
In 2005, there was a study done in Cook County Illinois to gather as much possible
information on car title loans based on public information. Chicago is located in Cook
County and naming the city gives a reader a better idea on the demographic region
represented in the study. There were no more recent findings posted, but knowing how
today’s society has people living paycheck to paycheck and carrying much larger debt
figured, one can only imagine the increase in numbers for the following tidbits of
*There were 260 storefronts located in Illinois. These stores were run by 63 different
title loan companies. Chicago is a major metropolitan area with extensive public
transportation opportunities. The bus and train systems set up in cities like Chicago
have been helping residents meander throughout the city and surrounding communities.
It is interesting how that even within this metropolitan region, so many title loan
companies not only exist, but thrive.
*The median (average) loan for this area in 2005 was $1500. The median finance
charge was $1536 with an average APR of 256%. It isn’t surprising to me that people
were paying more in finance charges than they were loaned. If paid off on the original
due date, typical loans would charge 25% interest and the full payment would be $1875
rather than $3036. Extending a title loan will prove to be quite costly in 2013 as well.
*The high cost of these loans was due to people only paying fees each month and not
paying down the actual principle. In 2005, 21% of loans were taken out to payoff past
loans. This “cycle of debt” continues to thrive within problematic finances and
short-term loans are often used often in order to payoff previous ones. Whether taking
out a payday loan or car title loan, a borrower will want to have a plan to pay off the debt
in a reasonable amount of time to keep the final cost of the loan from skyrocketing.
*Sadly, in 2005, 18% of car title loans resulted in the vehicle being taken as collateral for
a defaulted loan. Living in Cook County, residents at least had a supportive public
transportation system to help support the loss of a vehicle. Those living in smaller areas
will end up spending more for taxis or lose jobs and educational opportunities due to
lack of transportation.
*If a person was brought to court due to the defaulted loan, the median cost of
damages owed was well over 3 times the initial loan amount. Between principle
balance, fees, interest and court costs, a short-term loan turned out to be quite
*Most borrowers often failed to report to court in 2005 which automatically resulted in a
default judgment against them. Show up to your court date no matter what in order to
have even a small chance of any leniency in your case.
I share these facts of 2005 as just a reminder that car title loans have remained quite
similar to years of past. Fees, interest and cycles of debt continue to occur. What has
now changed is the opportunity for more business to open new store
locations as well as offer online title loans as well. As with any type of third party
money, you will want to have a payoff plan to prevent falling into any kind of long-term