Title loans have become very popular over recent years in the South. However, many people aren’t aware of the difference and the legalities behind title loans and title pawns. Some of you reading this might not have known they were different at all until just this second — and that’s okay! We’re going to tell you all about it.
The difference between title loans and title pawns
Yes, it’s true, they are both very similar. However, you do need to know the difference because one is legal and the other is illegal in the State of Georgia! So, let’s get into it, shall we?
A title loan is a type of financial aid that uses your vehicle title as collateral so you can borrow funds. You do not need to have perfect credit, but some providers will have a look to see that you’re not bankrupt.
Some companies call them car title loans, pink slip loans, auto equity loans, car equity loans, and more. This is how they get confused and slip under the state law’s radar because title loans in Georgia are illegal.
A title pawn, on the other hand, is completely legal in Georgia. However, they do still use your vehicle’s title as collateral. Plus, there is no in-depth credit check.
So, what’s the difference? Well, you have to be okay with the fact that you’ll be split from your vehicle title for the duration of the loan term.
The dangers of title pawns
Now, if you can afford to pay your loan back, then there aren’t really any dangers to title pawns. However, it is incredibly easy to fall into the debt cycle if you aren’t careful and don’t properly plan.
If you haven’t heard of the common debt cycle or debt trap as it is otherwise known, this is how it works:
You take out a title pawn loan.
You realize you can’t pay it back for whatever reason.
You take out a different loan to pay the initial title loan.
You can’t afford to repay the second loan.
So you take out another loan.
Hence, a cycle is born, one that is extremely hard to break free from.
Yup, it can leave you in a pretty bad situation, very quickly. Not to mention that they don’t take too kindly to life throwing you expensive, catastrophic curve balls!
Fortunately, there are ways that you can plan for and check whether you can afford it before signing up for anything.
To begin with, you can use a free online loan calculator. Here, you input the loan amount, interest rate, the figure you can afford to pay each month, and the duration. Then, it will tell you whether you can afford the loan. Sounds good, right?
Once you have done that, save for your loan. This does sound rather counterintuitive, but it can prevent you from falling into the awful debt cycle we spoke about earlier. Setting a specified amount aside leading up to the time you require a loan can help you meet the repayment deadline and ultimately, keep your vehicle and life intact.
The new usury laws to make title pawns safer for you
Hopefully, we haven’t just put you off the idea of getting a title pawn. Why? Because Georgia has enacted some new usury laws to make acquiring one a lot safer for you. Let’s take a look at the details.
As we mentioned at the beginning, title pawns have grown increasingly popular over the years — and trust us, the federal government has noticed! Therefore, they have cracked down on the title pawn industry, to help protect you and your financial health.
The new usury laws have been issued by the Consumer Financial Protection Bureau. This regulation requires title pawn lenders to figure out whether you can pay the loan back before they give it to you. While people shouldn’t be taking out loans if they can’t afford to repay them, the usury law has helped people (who would otherwise make rash decisions in times of crisis) stay out of the debt cycle.
Time scale and repayment terms
Since title pawns are under the “pawnbrokers” category, providers can charge you as much as 25 per cent interest per month for the first 90 days (plus fees). After that, it drops but there are additional fees charged each day you run over the 90-day “limit”.
It’s important to note, however, that these pawns must be issued for 30 days (as stated in the usury law). If you can’t repay it that quickly, then the term will be extended in 30-day increments. For those who reach three extensions, you are entering the debt cycle so try your best not to keep asking for more time — you’ll end up paying far more than it’s worth.
If you have taken a title loan out before, you will know the requirements. They haven’t changed much under the new usury laws. Regardless, we’re going to have a look at them now.
The contract requirements consist of the following:
The lender’s name;
The length of the loan;
The lender’s address;
The 30-day interest rate;
The regulations for extensions and the fees attached;
The repayment term start and end date;
The full amount (in dollars) that must be repaid; and
The statement informing you that if you fail to pay, your vehicle will be repossessed.
Watch out for these providers
Unfortunately, there are still companies operating in Georgia that offer title loans illegally. These providers won’t give you the legal paperwork, nor will they abide by usury laws. Not to mention that their interest rates are abominably high.
To avoid selling your soul to these illegal lenders, make sure you do your research. The Internet is full of reviews for everywhere you could ever go so check them out first. It will save you a world of hassle in the end.
The final take
We know that was quite a lot of information that was no doubt a tad confusing and somewhat scary. But don’t worry, you can find a summary below to ease your nerves and show you that there’s nothing to be afraid of (as long as you plan!).
Title pawns in Georgia are legal, title loans are not.
You can use online calculators to check whether you can afford them or not.
New usury laws have been enacted by the Consumer Financial Protection Bureau.
These laws ensure the lender must check you can afford to repay it in full before they allow you to sign the agreement.