What Exactly is a Title Loan?
A title loan refers to a secured loan in which the borrower’s vehicle, or the title to the vehicle, is used as collateral. A title loan mechanism involves the lender holding the title to a borrower’s vehicle in exchange for a loan to the borrower in an amount that is contingent on the value of the vehicle. As with many traditional loans, a title loan generally becomes due when a borrower cannot fulfill the payment obligation. However, use of the vehicle is usually not interrupted, and a title loan can become essentially an open-ended line of credit, with a borrower obtaining a loan, paying it off , and then using the title again as collateral for new borrowing.
The basic idea behind a title loan is that the loan adds value because, unlike an unsecured loan, it is backed up by an asset that has a definite monetary value. A borrower may choose a title loan over a traditional bank loan because of the speed with which a title loan can be set up and because of the comparatively low credit qualifications of a title loan. However, while it’s easier to obtain a title loan, the risk of repossession is greater. The loan becomes an asset against which the borrower has mortgaged the vehicle. If the loan payments are not made pursuant to the terms of the loan, the lender may repossess the car from the borrower.
How Do You Qualify for a Title Loan in Mississippi?
The requirements to obtain a title loan in Mississippi are purely relegated to the applicant and the items that they own. Most title loan companies will require that you be at least 18 years old, that you are a resident of Mississippi, and that you have a vehicle in your name. In addition, some companies put limitations on income levels making it even easier. If you have a vehicle that you fully own or one that has very little left on its payments, you can easily apply for a title loan of any amount.
Mississippi is not a state that has any restrictions on who can obtain a title loan. As long you have the right age and meet the income and residency requirements, you should easily qualify for a title loan with any reputable company.
Documentation Needed for Mississippi Title Loans
Like most alternative loans, there are requirements when applying for a title loan in Mississippi. The lender requires a vehicle with a clear title. A clear vehicle title means there are no liens or judgments against the vehicle. The car title should also be in the borrower’s name. Lenders also need to know the whereabouts of their interest. If the borrower no longer has the car because it was totaled or sold, they might not qualify for a loan. There are some exceptions where a title loan refinance is offered. Your lender will go over the details when you call.
If the car is paid off but there was a change of ownership, a legal document such as a shared ownership agreement, divorce decree, or death certificate is required. The lender also needs to see your identification. Identification should not be expired, and your physical features should match the document to prevent identity theft. Copies of your social security card and paycheck stubs are usually required. The lender will use your paycheck stubs to assess your ability to repay the loan. The lender may also ask for proof of residence, such as a current copy of your phone bill, bank statement, or utility bill.
Interest Rates & Terms of the Loan
Mississippi state law allows lenders to charge up to 300% for the amount of money you borrow and there are no regulatory limits on rollover terms. However, Mississippi state law does not allow lenders to charge additional fees or interest due to loan rollovers. There is no cap on the number of rollovers a title loan lender can offer. When examining other types of consumer financial products, state law may not allow such high interest rates or unlimited rollovers. Mississippi state law requires that all title loan lenders provide a written disclosure of the interest rates and other fees associated with the loan with the loan contract. Misleading terms and loan practices such as:
The average length of a title loan is 30 days. However, according to the Mississippi Department of Banking and Consumer Finance, it is not uncommon for a loan to be rolled over several times before it is paid in full. Borrowers should be cautious of these terms since the average title loan repayments of 25% of disposable income is higher than the CFPB’s 10% disposable income cap. Assume that you take out a loan for $500, a 30-day loan term, and an annual interest rate of 300%. Your payment at the end of the 30 days will be equal to the loan amount plus interest paid ($500 + ($500 * 0.03)) for a total of $650. If you paid on that loan in full, you would only be charged 60% in interest for a $1,190 total, but if you were to roll it over for two months, you would pay 120% interest and owe $1,790 by the end of three months.
State Regulations & Legal Protections
State laws govern title loans in Mississippi. Mississippi Code section 75-67-101 et seq. generally applies to companies that conduct business as "lenders." The statute is rife with consumer protection requirements. Specifically, the law requires lenders extend loans for a length of at least ten (10) months, and must require a borrower return a repayment schedule with certain minimum terms and repayment amortization periods. Generally, lender rules prohibit lenders from making any change to or print any statement on the face of a loan agreement that alters the terms required by the statute. Other provisions govern fees, charges, payments, liquidations of collateral, and insurance requirements. For a detailed list of all the statutory rules affecting lenders, visit the Mississippi Secretary of State’s website.
Many lenders offer installment payments and short-term loans as well, but the Mississippi uniform commercial code provisions aren’t specific to title loans. This section of the code applies to commercial transactions generally and would apply to a titling loan if the transaction did not conform to the legal definition of a "consumer credit transaction." In 2004 , the Mississippi legislature enacted the usury law which applies to a "consumer credit transaction." A consumer credit transaction occurs when the loan is under $500,000, the party creating the debt is regularly engaged in the business of making loans to consumers, and the transaction is primarily for personal, family, or household use. Most title loan companies do not lend more than $25,000 so they fit this definition.
Mississippi made headlines in July 2017 when the legislature passed a bill prohibiting title lenders from charging interest at any rate above thirty percent (30%), up from as high as seventy-eight percent (78^{1})). Governor Phil Bryant vetoed the bill. The legislation was designed to lower the cap to forty percent (40%) but passed the legislature at thirty percent (30%) before being vetoed. A committee of legislators introduced a new bill in January 2019. While the bill was likely tabled, Mississippi legislature may finally see relief from predatory lending.
Main Alternatives to Title Loans
The risks associated with title loans may cause some borrowers in Mississippi to seek an alternative to this type of lending. While the state of Mississippi has not approved a legislated structure for alternative lending products, other options are available. Traditional personal loan products, such as those offered by credit unions or local banks, range from $1,000 to $50,000 and have fixed terms. Many personal loan programs offer more flexible credit requirements than those available to title loan borrowers.
Interest rates on personal loans depend on several factors, including the borrower’s credit profile, loan term, loan type, and lender type. According to the Federal Deposit Insurance Corporation (FDIC), online banks tend to charge lower interest rates than traditional or local banks. Interest rates on personal loans may also have origination fees, like credit cards. The FDIC reported in 2017 that the average credit card interest rate was nearly 15%, while some personal loan servicers offered rates as low as 5%. Personal loans, along with other long-term loans, tend to have higher annual percentage rates (APRs), whereas title loans tend to have a lower APR, but a shorter term.
Credit cards are another alternative to title loans. Credit card companies typically do not have additional fees beyond the interest incurred, including the initial purchase of the card. While interest is charged on any balance over $0, the cardholder may not need to use the funds, or may be able to pay the card off in full as well as on time. With a title loan, if the borrower cannot afford the interest payments on the loan, the lender can repossess the vehicle.
Alternatives to title loans go beyond traditional lending products. Loan alternatives include financial assistance programs and peer-to-peer lending. Peer-to-peer lending connects borrowers with lenders who have signed up for the program. Borrowers review lenders and lenders review borrowers to determine whether to enter into a peer-peer lending agreement. Unlike traditional personal loan products and credit cards, peer-to-peer lending programs do not usually charge interest.
Many states offer financial counseling and assistance programs, and Mississippi provides the same. Organizations like the Mississippi Housing Partnership, a HUD-certified housing counseling agency, and the Mississippi Center for Justice, which provides free legal representation for low-income clients, are intended to help individuals become more self-sufficient and to economically improve the lives of participants. The Mississippi Center for Justice provides free legal representation on issues related to economic security, including child support, economic development, payday lending, and housing.
Tips to Stay Safe
When considering a title loan, as with other types of credit, it’s important to be responsible about borrowing. Title loans should be part of a larger financial strategy—never a last resort when funds are low or bills are due. Be sure that you have a budget in place and that the amount you borrow does not jeopardize your ability to pay your bills and other debts on time.
Consider the following tips for safe, responsible borrowing: Take your time before taking out a title loan. Know all the terms and compare the rates and costs from several title loan lenders. Shop around for the best rates. The initial "shop around" is the best way to ensure you get the title loan that is best for you. For example, if possible, don’t wait until the day before your car is to be repossessed to take out a title loan. By waiting too long, you may not have adequate time to compare rates from different title lenders. Make a simple monthly budget and stick with it to determine if you can afford to pay off the entire amount of your loan , principal, and interest charges, within the loan repayment period. If you are not able to pay off the loan by the deadline, do not borrow money to pay off the title loan. Instead, do your best to come up with the money to pay off the loan, so you can keep your car. However, if you cannot afford to pay off the title loan and need more time to pay it, then you can pay the monthly interest charges and fees until you can pay it off. Do not take out another loan with a different title loan lender to pay off one you already have. That is a sign that you may not be able to make the monthly interest and fees payments, and that you may need to find an alternative payment source for your loan, or find ways to save to pay off your loan when it is due. Negotiate with the title loan lender for a longer repayment plan when needed, to give yourself more time to repay the loan. Avoid other fees and car repossession by ensuring that you can afford the loan repayment plan before moving forward.