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A title loan is a popular short-term financing option that allows a person to borrow money at a lower interest rate compared to payday loans. Even if a borrower has bad credit or no credit, he can still get approved for a title loan because credit checks are not required.
With a lien-free car title as collateral, a person can get a loan easily to spend on his emergency needs. While repaying the principal plus interest, the borrower can still drive his car. But if he fails to make payments according to the loan agreement, the lender may repossess his vehicle.
Car title lending is legal in the state of Virginia. However, the conduct of this business is highly regulated. For example, a borrower is allowed only one title loan at one time. Loan companies must follow the rules and requirements before being licensed to do business. There are also consequences if companies fail to meet those requirements.
The Legal Status of Title Loans in Virginia
According to Virginia state laws, any entity or company wanting to offer car title loans must be licensed by the State Corporation Commission (SCC). Securing a license requires the following: filing an application form with the SCC, submitting the documents deemed necessary by the Commissioner, paying a non-refundable application fee, and filing a bond with the SCC. The bond will be used to pay any person/borrower who suffers damages in case the loan company fails to deliver its promise as per the loan agreement.
To check if a loan company is properly licensed and bonded, visit the SCC website to see the list of companies posted or call toll-free 1-800-552-7945.
Virginia’s Title Loan Laws and Regulations
Here are a few of the important rules that govern Virginia car title loans:
1. Maximum Interest Rates and Fees
According to Sound Financial, the maximum interest rate of title loans in Virginia is 36%. A lender may charge a monthly maintenance fee of not higher than $15 or 8% of the installment payment and a late fee of not more than $20.
When a car has been repossessed or when the borrower has missed payments for 60 days, the lender cannot charge any interest. The costs of repossession and sale of a vehicle cannot be more than 5% of the loan amount.
Fees should not be added to the loan amount which incurs interest. The total amount of fees collected by the lender cannot be (a) more than 50% of the loan amount if the loaned amount is $1,500 or less; (b) more than 60% of the loan amount if the loaned amount is higher than $1,500.
2. Repayment Terms and Restrictions
The minimum term for car title loans is 6 months and the maximum is 24 months. The term can be less than 6 months if the loan amount is less than 5% of the borrower’s gross monthly income or less than 6% of his net monthly income.
3. Consumer Protection Measures
The State Corporation Commission has made clear all the restrictions and requirements that licensed lenders need to comply with to protect consumers. In case of violations, the Commission may revoke the lender’s license, impose a financial penalty of up to $1,000 and file criminal charges.
When a borrower suffers loss because of a lender’s violation and succeeds in bringing a civil action to court, he could recover his losses including attorney’s fees, court costs and expert witness fees.
Complaints against a car title loan company can be sent to:
Bureau of Financial Institutions
Attn: Complaints
P.O. Box 640
Richmond, Virginia 23218-0640
Fax: (804) 371-9416
Alternatives to Title Loans in Virginia
A title loan is a very expensive source of borrowed cash with APRs (annual percentage rate) going up to three digits. Why not try these alternatives to title loans?
- Get a small loan from a bank or credit union
- Peer-to-peer personal loans
- Borrow money from family or friends
- Request an advance salary from your boss
- Seek financial assistance from government or charitable organizations
- Ask for financial advice from a free consumer credit counseling service
Risks and Considerations
While title loans can be a tempting solution for quick cash, they are also risky. One major concern is the high-interest rates typically associated with these loans. They can be considerably higher than those of traditional loans, potentially leading to a heavy financial burden if not managed carefully. Another risk to consider is the possibility of repossession. If you’re unable to repay the loan as agreed, the lender may seize your vehicle, causing significant disruptions to your daily life and financial stability.
Before jumping into a title loan, ask yourself: Do I really need to borrow cash? Can I afford to pay the borrowed money? Are title loans the last and only option available to me? If you answered yes to the three questions, only then should you consider a title loan.
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