Title loans have become very popular in recent years in the South. However, many people are unaware of the difference and the legalities behind securities lending and securities pawns. Some of you reading this might not have known they were different at all until this second – and that’s okay! We will tell you everything.
The difference between securities loans and securities pawns
Yes, it’s true, they are both very similar. However, you need to know the difference because one is legal and the other is illegal in the state of Georgia! So let’s go, shall we?
A title loan is a type of financial assistance that uses the title of your vehicle as collateral so that you can borrow funds. You don’t need to have perfect credit, but some providers will verify that you are not bankrupt.
Some companies call them car title loans, pink slip loans, auto equity loans, auto equity loans, etc. This is how they get confused and slip under the radar of state law because title lending in Georgia is illegal.
A title pawn, on the other hand, is completely legal in Georgia. However, they still use your vehicle title as collateral. Also, there is no extensive credit check.
So what’s the difference? Well, you have to agree that you will be separated from the title of your vehicle for the duration of the loan.
The dangers of title tokens
Now, if you can afford to repay your loan, there’s really no danger of title pawns. However, it’s incredibly easy to fall into the cycle of debt if you’re not careful and plan properly.
If you haven’t heard of the common debt cycle or debt trap as it’s otherwise known, here’s how it works:
- You take out a title pledge loan.
- You realize you can’t pay it back for some reason.
- You take out a different loan to pay off the original title loan.
- You cannot afford to repay the second loan.
- So you take out another loan.
- Thus, a cycle is born, from which it is extremely difficult to break free.
Yes, it can leave you in a very bad situation, very quickly. Not to mention they don’t take life very well throwing expensive and catastrophic curveballs at you!
Luckily, there are ways to plan ahead and check if you can afford it before signing up for anything.
To get started, you can use a free online loan calculator. Here you enter the loan amount, the interest rate, how much you can afford to pay each month, and the term. Then he will tell you if you can afford the loan. Sounds good, right?
Once you’ve done that, save for your loan. It seems rather counter-intuitive, but it can prevent you from falling into the terrible debt cycle we talked about earlier. Setting aside a specified amount until you need a loan can help you meet the repayment deadline and ultimately keep your vehicle and your life intact.
New usury laws to make title pawns safer for you
I hope we haven’t just pushed you away from getting a title pawn. Why? Because Georgia has enacted new usury laws to make acquiring one much safer for you. Let’s take a look at the details.
As we mentioned at the start, title pawns have become more and more popular over the years – and believe us, the feds have taken notice! Therefore, they have cracked down on the pawnbroking industry, to protect you and your financial health.
The new usury laws have been released by the Consumer Financial Protection Bureau. This regulation requires pawnbrokers in title to determine if you can repay the loan before giving it to you. While people shouldn’t take out loans if they can’t afford to repay them, the usury law has helped people (who would otherwise make rash decisions in times of crisis) to stay out of the debt cycle.
Reimbursement terms and conditions
Since title pawns fall into the category of “pawnbrokers”, providers may charge you up to 25% interest per month for the first 90 days (plus fees). After that, it goes down, but an additional fee is charged each day you go over the 90-day “limit”.
It is important to note, however, that these pawns must be issued for 30 days (as stated in the usury law). If you can’t pay it back that quickly, the term will be extended in 30-day increments. For those who reach three overtimes, you’re entering the cycle of debt, so do your best not to keep asking for more – you’ll end up paying way more than you’re worth.
If you have ever taken out a title loan, you will know the requirements. They haven’t changed much under the new usury laws. Anyway, let’s take a look at them now.
The requirements of the contract consist of the following:
- The 30-day interest rate;
- The payment of extensions and the associated costs;
- The start and end date of the repayment period;
- The total amount (in dollars) to be reimbursed; and
- The declaration informing you that in the event of non-payment, your vehicle will be repossessed.
Beware of these vendors
Unfortunately, there are still companies operating in Georgia that illegally offer title loans. These providers will not give you the legal documents and will not follow usury laws. Not to mention that their interest rates are abominably high.
To avoid selling your soul to these illegal moneylenders, be sure to do your research. The internet is full of reviews of all the places you could go, so check them out first. This will save you a world of hassle in the end.
The final take
We know that was a lot of information that was definitely a bit confusing and somewhat scary. But don’t worry, you can find a summary below to calm your nerves and show you that there’s nothing to worry about (as long as you plan ahead!).
- Title pawns in Georgia are legal, title loans are not.
- You can use online calculators to check whether you can afford it or not.
- New usury laws have been enacted by the Consumer Financial Protection Bureau.
- These laws ensure that the lender must verify that you can afford to repay it in full before allowing you to sign the agreement.