Why Car Title Loans Are Always a Bad Idea
- By Jon Brooks
You paid off your car or truck loan. Congratulations! It likely took up to five years to do that, and you justifiably feel proud of that fact. But unfortunately due to an unforeseen circumstance, you now need money quickly to pay a medical bill, a credit card balance, or to pay off an extremely high interest payday loan. But you have to fork over you car’s title—in other words, hock it like to a pawn shop—in order to get a new loan. They’ve got you over the proverbial “barrel.”
Vehicle title loans used to be rare. Then the payday loan and auto-title loan industry started to grow exponentially beginning in the 1990s. Now such lenders dominate strip malls across the country and market their predatory loans in TV and radio commercials. Then the otherwise reputable credit unions even got into the act. But make no mistake, a title loan against your paid-for vehicle is not much different than going to a pawn shop with your grandmother’s jewelry as collateral. Because of extremely high interest, there is a strong likelihood that you will lose the collateral (your car) to the lender. In fact, as National Public Radio reported in June 2016, approximately 20% of all borrowers who take a title loan against their car or truck end up losing the vehicle because they can’t afford to pay back these high interest loans. And if you do keep the car, you will have ended up paying more than the value of that vehicle not once, but twice.
In Chapter 13 Bankruptcy, You Can “Cram Down” a Title Loan!
Bankruptcy can help! Chapter 13 bankruptcy can lower interest rates to the “Till rate” (around 4.8%) if you pay the car loan through your Chapter 13 bankruptcy plan. Car title loans can even be “crammed down” in Chapter 13. That means that if the balance owed on the vehicle is more than the fair market value of the vehicle, we can cram down the loan balance to the current value of the vehicle based on its age, mileage, and condition. A well-crafted Chapter 13 bankruptcy plan can shave thousands of dollars off your title loan. Even purchase money auto loans can be crammed down in Chapter 13, if the loan is more than 910 days old (2.5 years). And, of course, in any bankruptcy you can always surrender the vehicle and potentially pay nothing more even if you owe more than the car is worth.
Car title loans are a very costly and dangerous way to get quick cash. If your goal is to pay off a high interest loan such as a pay day loan, a credit card, or a medical bill for instance, then you would do yourself a huge favor by taking advantage of a free consultation with an experienced bankruptcy attorney first. You may be able to either discharge your unsecured debt entirely through a Chapter 7 bankruptcy or pay only a small percentage of your debts through a Chapter 13 bankruptcy all while potentially keeping your car or truck so you can get to work. Stop working for your debts and start working for you!
Our bankruptcy attorneys fight for ordinary hardworking people just like you in San Jose and the greater Bay Area. Our bankruptcy clients come from all backgrounds, and we are proud to be a multilingual bankruptcy law firm in San Jose that fights for regular consumers and small businesses.