Title loans are an interesting form of lending. Borrowers that have difficulty securing a traditional loan can choose to put their title, often of their vehicle, on the line as collateral. A title, given as collateral, reduces the risk for the lender.
Lower risks are good for a thriving economy.
And Israel’s auto industry is booming. Take an article written over a year ago that found low interest rates helped Israelis buy 300,000 cars. Many new Israelis are finding themselves behind the wheel of a new car. Lending practices have allowed up to 100% financing in many cases.
The new buying trend has led to more highway congestion, too.
Israel Auto Importers Association found that 254,000 new cars were on the road in 2015 and just 205,000 in 2012. So, over the course of four years, lenders have provided nearly 50% more auto loans. New vehicle sales grew 40% over the past three years.
Banks extended 15% more car loans during this time, but this figure is misleading. Not all loans were marked as auto loans. Collateral is all that was needed to secure a large loan, and lenders can choose to use this money for anything, from paying off other high interest debts to buying a car or renovating their homes.
The rise of new vehicles on the road begs a new question: should title loans become more prevalent?
When discussing title loans, this is the practice of offering cash to the borrower that is based on the value of their car. Borrowers must have a vehicle that has a clear title. Leans or a levy from a creditor can’t be on the title for the lender to offer lending.
Newer cars still under a loan are not what I’m talking about here.
The older vehicles, or vehicles that have been paid off, may be a good option as an car equity loan.
So, should some of these buyers consider title loans in the future? Maybe. NBC News had a great report that sheds some light on the thriving industry in the United States. Consumers paid $3.5 billion in interest charges related to title loans.
Title loans are good for the economy, but how do they work for consumers?
A report suggests that the average loan was $950, with repayment being $2,140 if the borrower pays the loan back over 10 months. This is astronomical, so if a borrower does choose to go this route, the key is to pay the loan back faster.
Lenders seem to have a solid business plan because if the borrower doesn’t make the payment, they lose their automobile in the process.
Consumers are the ones at risk. But what do the statistics say about borrowers defaulting on their loans?
Arguments claim that 6% – 8% of cars are repossessed, with some figures claiming 17% of customers suffer repossession fees.
It’s a risky business for borrowers, so maybe Israelis will want to take their time before they decide to go all-in on title loans as they have in the United States. Interest rates, if they’re able to be held under control, can help make title loans a more viable option for potential borrowers.