The Consumer Financial Protection Bureau (CFPB) recently released a study which showed that the vast majority of borrowers who take out a single-payment automobile title loan cannot afford to make the payments and need to take out additional loans to pay it off.
The study, which was reported by The New York Times, showed that the car title loans — which are due in 30 days — can keep borrowers in debt for months as extra fees and interest are added to the loan amount. Although those who take out the loan usually have one month to pay it off, some states require the loan to be paid off in as little as two weeks.
Consumers take out a car title loan when they are short of cash or have an unexpected expense. They borrow the money for a short amount of time at a high interest rate and put up the title to their vehicle as collateral. The lender determines the amount based on a percentage of the car’s value and holds onto the title until the loan is repaid.
Of the 3.5 million single-payment loans issued by nonbank lenders and examined by CFPB, about 20% of all borrowers had their vehicles seized for failure to repay. Only 12% were “one and done,” meaning they paid off the loan — including fees and interest — in a single payment within 30 days, the report stated.
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