Payday interest rates and securities lending present dangers

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KNOXVILLE, Tennessee (WATE) – At this time of year, if money is running out, some people turn to payday or title loan companies for quick cash.

While these companies serve a purpose, they have consequences if you don’t pay off your loan within a month, and the interest rates are extremely high if you renew your loan.

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The annual percentage is close to 300%.

Car title loans provide you with quick cash in exchange for your vehicle title as collateral. Typically, auto title lenders have few requirements for potential borrowers.

You can often walk away with the money in under an hour, but these loans are expensive if you don’t pay them back within a month.

So you need to understand the terms of the deal.

Woman Title Loan Problems

A woman tells her story where she got into the car title lending game – and struggles to win.

Geraldine Kline was delighted with her six-year-old car, which she paid off in January 2018.

Four months ago, however, Kline was running out of cash. Using her car as collateral, she took out a title loan on July 8.

“I wanted to borrow exactly the $ 2,500. But from what I understand, it will take a long time to pay it off, ”she said. “I asked her how long and she said maybe about a year. I said it wasn’t that bad.

The title loan term was 30 days, according to the contract.

Kline said she was told at the loan company that she could roll over the advance. However, Kline says she didn’t know that 267% – is the annual interest rate.

“When I asked how long it would take to pay it off, she said about a year, unless you wanted to pay it all in one go,” Kline said. “She said you can do it next month if you have the money.”

So far, Kline has made four payments on the $ 2,500 loan.

“I’ve already paid a little over $ 2,100 to $ 2,200 in four months. It’s the more and more payments that are the problem, ”she said. “When you live on a fixed income, you can’t go out there and pay 550 in a month.”

Under federal and state law, securities lending companies are honest with the terms of their agreement and are strictly regulated. In the contract, the disclosure of the truth about the loans shows that the annual percentage rate is 267%.

“I should have read this. It’s my fault I didn’t pay attention to the details, ”Kline said.

Financial expert takes a look at securities lending

John Fawaz, financial planner at UT Federal Credit Union, says that once a borrower falls behind on a title loan, the interest rate accumulates.

“When you borrow $ 2,500, very few people can pay it off in a month,” Fawaz said. “Even if you think I can do it, it’s really hard. Well, some people say, “I’m gonna pay in a year,” well, in a year you pay 2,000 extra interest. You keep it three years, well now you pay eight thousand interest. Then the problem gets worse.

Fawaz adding that the deferral of the title loan is the problem.

Securities lending is potentially risky because if you default you can lose your car.

In fact, according to the Consumer Finance Protection Bureau, 20% of those who take out a short-term, one-time auto title loan will have their car repossessed.

Records also show that only 12% of single payment borrowers repay within 30 days.

Kline says she will continue to make her loan repayments and hopes to get out of debt soon – she estimates it will be repaid by February 2020.

Some Tips For Securities Lending – Be Aware

Paying off a title loan is the easiest approach to avoiding high interest rates.

One option for replacing the title loan with cash is to take out another loan – a fixed rate loan from a bank or credit union is often less expensive than renewing your title month after month.

If all else fails, someone close to you might be willing to co-sign and help you get approved for a loan.

The last thing you want to do is default on a title loan – you not only lose your car, it ruins your credit as well.

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