How to lose your car without hardly trying

Nobody needs a house to fall on them (any more) to know that taking out a subprime mortgage is a lousy idea.

But car title loans -- there doesn't seem to be a lot of attention paid to these yet.

And so I just thought I'd mention that car title loans -- which are illegal in some states like Florida -- are a rotten idea. Sure, this is my opinion, but if you know nothing about them, read on, and see what you think.

It can sound nice at first, because if you take out a car title loan, you have open-ended credit, and credit, these days, is kind of hard to come by. At least for some people, it is. (You read enough articles about the economy, and it's easy to forget that there are many Americans who are doing just fine, the price of gas notwithstanding.) Anyway, car title loans do offer you open-ended credit, yes, but that's the only selling point, which is a good way to put it, I guess, since in a way you're selling your car to these financial companies that issue them.

What happens is that a company will offer you a loan that you can pay back within 25 days and not owe any interest. So far, so good. But what if you don't pay it in 25 days? What if you pay it in 26?

In theory, you can lose your car. In reality, too.

But that's not what happens. You don't want to lose your car, so you're talked into rolling over the loan, and so your interest gets higher. By law, you can roll over the debt six times, in which case the interest and payments are extremely high, and then since, of course, you still can't pay, the repossession process begins. If you don't want to lose your car, you generally stick your car in the garage, where it can't legally be repossessed, provided the garage door is closed. Not that it does you much good. You'll be afraid to drive your car, for fear that when it's out of the garage, you'll have it taken away. That's the fate of 30-year-old Joseph Ledford, who gets by on disability payments and bravely told his story in last week's Chicago Tribune.

According to that article in the Tribune, of 16 states that allow these loans, Illinois is the only one that doesn't regulate the loans. They tried to back in 2001, putting rules in place that covered loans up to 60 days. But most lenders, the Tribune reports, shifted the loans to 61 days or longer to avoid the rules. Cute. Meanwhile, the state hasn't changed the law to reflect those changes.

The auto title lending process typically shakes down this way: You give your car's title and a copy of the keys to a lender. They then give you a loan up to half the car's wholesale value. The borrower then agrees to repay the loan plus a little extra for the trouble -- generally 300% annual interest -- as well as other fees. You often have to pay the loan back within a month or two, or in Illinois's case, 61 days or a bit longer.

And, of course, in the end, almost always, you lose your car, and you've forgotten why you initially took out the loan in the first place.

So if you're thinking of taking out a car title loan, don't. Find another way. If you need the money that badly, you already have enough problems.

Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).
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