The payday loan industry, which includes auto title lending, is notorious for charging interest rates of 500% or even higher, and most often they prey on low-income Americans.
The $44 billion payday loan industry, which continues to grow despite its bad rap, consists of high-cost, low-quality products that send people into cycles of mounting debt.
These loans typically involve small amounts for short periods. An auto title loan is similar, but uses a car title as collateral rather than the post-dated check or access to a checking account required by payday loans. If borrowers are unable to pay back the loan amount in full at the end of the term, they can make an interest-only payment to delay repaying the loan. This process increases total fees without decreasing the principal of the original loan.
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