Released: December 27, 2006

Borrowers lose big with car title pawn loans

Source: Sue Kirchhoff, USA Today

Strapped for cash, James Haga of Marion, Va., took out a $1,600 loan last year, using his truck as collateral. In August, when he couldn’t keep up with the escalating balance, Haga’s Ford was repossessed. Total cost for the loan? A $13,000 auto, plus $4,500 in payments.

“I was at home in the shower getting ready to go to work, and I went out to get my truck and it was gone,” says Haga, 44, whose loan carried an effective 300% annual interest rate. Adding to his worries, Haga’s girlfriend, Brandy Smith, 31, is carrying a similar, $700 loan.

Haga is one of thousands of consumers who have turned to auto title lenders for quick cash and ended up with big problems. Under the loans, sometimes called auto equity lines of credit or auto pawns, individuals offer fully owned cars or trucks as backing for loans of several hundred to several thousand dollars. Lenders take the title to the vehicle and, often, a duplicate set of keys.

Title lending is one of the lesser-known, high-cost loans now proliferating across the country. But consumer advocates call it one of the more dangerous.

If borrowers can’t pay back the loans, often due in 30 days, they often roll them over, with multiplying fees. If they still fall behind, their cars can be repossessed.

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