Reasons why Secured Loans are Outright Banned in North Carolina and Some Alternatives:
When you need cash in an emergency, you might want to seek a title loan. But before doing so, make sure you have complete knowledge of the consequences of taking a title loan. Title loans help you get a loan up to $10,000 quickly, but may lead to dangerous results later on. Due to various reasons explained below, some states have banned them, including North Carolina. Some alternatives will be listed below.
Why are title loans outright banned in North Carolina?
State governments have had varied reactions to allowing consumers access to collateral from their vehicle. Secured loans are still legal in many states, but there are a few that have banned them, placing this form of borrowing in the category of predatory lending practices. North Carolina was one of the first state to ban title loans in 2001. Some main reasons are mentioned below.
- The interest rate on these and other short term loans are usually very high. The interest rate starts with 25 percent, which amounts to 300 percent annually. For example, if you take a title loan of $1000 and pay it back in a year, you will have to pay $4000. This is three times more than the loan amount. Usually a simple signature loan can be acquired for as little as 4-5% interest.
- The money lenders aim at keeping the people in debt by offering very high-interest rates. Very few can afford the interest and this leads to repossession. The lender can then use the vehicle or sell it and keep all the money. Most borrowers end up defaulting on the loans and losing their vehicles. The high interest rates are also necessary, as the average borrower in a title loan is a high-risk proposition.
- They are marketed to be 30-day loans, but they often take much longer to pay off, resulting in total costs in excess of 200 percent. The lenders also impose hidden terms and conditions which disadvantage the borrower. Some states have established laws to limit either the term of the loan, or the number and type of renewals allowed in title loans.
- Some lenders try to acquire your vehicle through illegal means if they see more profit in selling your vehicle than receiving your interest.
Alternative solutions to car title loans
Despite the issues associated with auto title loans, there is still an interest in them. Below are some options for residents of North Carolina:
- You can move out of the state and seek a title loan in South Carolina where they are legal. Other nearby states may offer title loans as well. Side note, this is not something you should do.
- You don’t have to leave the state, however. Title loans are readily available throughout the Southeast and available online as well.
- You can ask for funds from different sources like family, friends, relatives, emergency funds from charities or local churches, or small-scale debtors and lenders.
- You can also seek help from financial organizations, local credit unions, take out a pawnshop secured loan, use a credit card, or try to acquire an advance paycheck.