AUTO TITLE LOANS - HOW TO PROTECT YOURSELF AGAINST PREDATORY LENDING

If you've ever been desperate for cash and have nowhere to turn, you know how easy it can be to fall prey to loan sharks. Because auto title loans are given to people with bad credit who need cash for an emergency, this market is especially susceptible to devious lending practices.

Many lenders who operate in the subprime market practice what is known as predatory lending. According to consumer groups, predatory lending practices by title loan companies can trap cash-strapped borrowers in long-term debt, and put at risk the family's vehicle, which is one of their most important assets.

When people are desperate for money, they are more vulnerable, are less likely to read the fine print, and can easily fall prey to predatory lending. With no laws to govern them, most car title lenders, except those in Virginia, operate under the same regulations that govern pawn shop brokers.

Companies that offer auto title loans cater primarily to borrowers with bad credit and they charge higher interest rates than conventional lenders. Since their loans are open-end credit, borrowers are often forced to pay exorbitant triple-digit interest rates and end up agreeing to unreasonable loan terms that lead to unfair treatment.

Besides hidden fees and rigid terms, borrowers could end up paying a balloon payment at the end of term. If the loan is not repaid within a month, lenders could roll it over into a new agreement and charge additional fees and even higher interest rates. Some companies charge pre-payment penalties that prevent borrowers from repaying the debt before time to save on interest payments.

To ensure that you do not fall prey to such devious lenders, it's important to know your rights, and to understand the industry standards and the applicable laws. To protect yourself and your vehicle from predatory lenders, the first thing to do is to be better informed about the auto title loan industry and compare different lending companies.

Interest rates on auto title loans can fluctuate wildly between lenders within the industry. So you need to compare the interest rates offered and fully understand the annual rate of interest you will be paying. You can do this by carefully reading the legal disclosure section of the loan agreement.

Avoid predatory lenders who use aggressive tactics to pressure you into signing agreements that impose rigid terms that are difficult to live up to. Look for a lender that offers flexible term options. This will give you more latitude for repayment, and makes it less likely that you will get into a situation where you could lose your car title and have it repossessed.

To help defend consumers from predatory lending practices some states have passed laws. The law in Oregon prohibits a lender from holding the keys of a borrower's car while the loan is being repaid. This prevents the lender from repossessing a vehicle without first exhausting all other options to claim payment.

Read the agreement of auto title loans before you sign it to ensure that you have the right to take legal action if your consumer rights are violated. When in doubt, take legal advice to ensure you do not fall into a debt trap.

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