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Research News at Vanderbilt

The trouble with car title loans is NOT people losing their cars

by | Apr. 1, 2013, 12:19 PM | Want more research news? Subscribe to our weekly newsletter »

A title loan store in Nashville, Tenn. (Joe Howell/Vanderbilt)

The standard knock against car title loans is a toothless assertion that the transaction leads to people losing their cars and then their jobs because they have no transportation to get to work, say three researchers led by Vanderbilt’s Paige Marta Skiba.

“Repossession affects few borrowers, and our evidence indicates that most borrowers will not lose their only way to work because of repossession,” said Skiba, associate professor of law at Vanderbilt Law School. “Thus, prohibitions on title loans based on the premise that borrowers are frequently losing their vehicles are misguided.”

Title loans are high-cost, short-term small loans secured by a vehicle that the borrower usually owns outright. Such loans, along with payday loans, are used by many people who are shut out from the mainstream banking system. The most common term for title loans is one month, and the interest rate is usually around 300 percent – when expressed as an annual percentage rate.

If the borrower defaults on the loan, the lender can repossess the borrower’s vehicle.

Skiba, Vanderbilt economics Ph.D. student Kathryn Fritzdixon and Jim Hawkins, assistant professor of law at the University of Houston Law Center, surveyed 400 title loan customers in three states (Georgia, Idaho and Texas) in partnership with a title lending firm in November and December 2012. The three states have distinct approaches to regulating title loans, but enough similarities to allow meaningful comparisons.

Their study, Dude, Where’s My Car Title?: The Law, Behavior and Economics of Title Lending Markets, can be read at It will be published this year in the University of Illinois Law Review.

Paige Marta Skiba (Vanderbilt Law School)

The study showed that less than 10 percent of vehicles involved in title loans ended up being repossessed. Moreover, less than 15 percent of borrowers said they had no other way to get to work if their car were repossessed.

“While not insignificant, this small percentage suggests that the dire consequences that critics predict are unlikely to occur for the vast majority of title borrowers,” Skiba said. “Rough calculations would place the percentage of title borrowers who lose their jobs as a result of title lending at 1.5 percent.”

Regulators could be of some help to title loan consumers, Skiba said. The research shows that most title loan customers are overly optimistic that they will pay back their loans on time, which means the loan ends up costing them much more than they believe it will when they first receive it.

“Policymakers should require that title lending companies post information about how people actually use title loans: information about the number of times people roll over their loan, the amount of money those rollovers cost in total, the number and amount of late fees and other fees people pay, and the likelihood of defaulting on the loan,” the study reads. “Research has demonstrated in real world markets that disclosure rules can be used to inform people about how others use the loans, which can change their expectations about their own use of the product.”

Media Inquiries:
Jim Patterson, (615) 322-NEWS

  • sarahsmile 90

    Title loans are very costly and even if you manage not to have your car repossessed, it is so difficult to get caught up on your finances with this type of loan.

  • Good point Bdness. The comparison with cash advance is weak. Isn’t it more like a bail bond? Also, the risk is very high for title loan companies. Of course fees are going to be high.

  • Stephanie Lombardo

    Had you paid your loan back in 1 day it would have cost you about $2 anyways however most states have a borrowers right of rescission so that you would not be charged the following day for returning the loan amount in full and would in fact waive that days worth of interest. Please be informed before making a stupid statement..

  • Stephanie Lombardo

    That’s not how it works. Title lenders lend based on the vehicle value. If you somehow scored a deal where you got a $8,000 vehicle for $900 then you’ve made money but if you bought a $900 car that was worth $1000 they wouldn’t give you more than $500.

  • ray

    These places should be illegal everywhere, no matter how much you need financial help getting a loan on your vehicle should not be an option, its just another way to take advantage of people struggling to make ends meet.

  • Ashley

    I work at a Title Loan Company in SC. These loans are extremely costly!! All loan representatives are suppose to go over a company document (slightly differs per company) that states,”This is a high interest loan. We encourage you to borrow money with a lower interest rate if possible.” Now, if everyone does that, I do not know. However, I think title loans are great for small business owners and landlords, ex: a husband and wife were starting a small day care in the area, their startup expenses were higher than planned. But they already had customers and children registered to start the program. They borrowed a few thousand dollars and paid it back about 2 months later. That is roughly, $100-$400 total interest – I know that might seem high to some but it only took 20 minutes, (a bank can take hours or days- if approved). For normal people, that plan on being set up on a 12-24 month repayment plan, these loans are extremely extremely costly. I personally think title loan companies should raise their “proof of income” requirement. For SC, it is currently $800 per month. I think if people have to show proof of higher income, they will be more likely to repay back the debt. Because once you get into the hole with these loans, it’s almost impossible to get out, therefore, repossession.

    • Jenifer Ramirez

      So they can repossess my vehicle but can they take me to court, they have received double of what I originaly loaned through my monthly payments.

      • HEIDI Simms

        Yeah its ridiculous!! I got a $500 (min amount ) all I really wanted was $100, but they said I had to take the minimum of $500 (and which they were trying to get me to take a $750) thank god I didn’t! Anyways, i got this loan last Nov 2014, it is now Nov. 2015 & have spent a total of $2,300 & not 1 penny has gone towards my $500 loan.. We go without eating because of $160-$190 interest fee I pay every month just to extend it to the next month,,, my advise do not make the same mistake I did, they’re crooks!!!

  • Steven Zack

    What is interesting to me is that little blame is put on the borrower. Yes, the onterest rate is high but all the numbers are put in front of you before you agree. The total cost of the loan and the monthly payment amount are right there for you to see. If you don’t like it, don’t sign.

  • Harolyn Murray

    You are CORRECT! There is a cap on the interest rate. In the state of Georgia the limit is 25% percent or 152-172% percent annually.

  • Christina Warren

    What happens if the title loan company goes out of business? Isn’t that the title company defaulting on their part of the contract?

  • Aaron Sullivan

    mine got towed have not heard a word from the title company…..