Interest rates are a common topic of discussion when it comes to title loans. Because there is no federal law limiting the amount of interest title loan lenders can charge, regulation on that occurs at the state level, and many states don’t set any sort of limit.
When you think that car title loans in Texas could be a good solution to financial issues, it’s important to understand how much interest the title loan company is going to charge you. The following will explain how Texas title loan interest rates work, other fees that you may experience and how you could end up with a title loan that doesn’t cost you a penny in terms of interest.
Regulations on Texas Title Loan Interest Rates
It’s up to each state to decide the maximum interest rates on title loans, and in Texas, the limit has been set at 10 percent.
How does this compare to other states? Very favorably. As mentioned, there are quite a few states that have no limit on title loan interest rates, which often leads to lenders charging 25 percent per month for an annual percentage rate (APR) of 300 percent. Even among states that do have interest rate limits in place on title loans, these limits are sometimes over 20 percent per month, meaning they do little to help consumers.
Texas ends up as one of the states with the lowest title loan interest rates in the nation. With that being said, there can be more to title loans in Texas than meets the eye.
Title Loan Companies Operating as Credit Access Businesses
There is what many would consider a loophole to the Texas title loan interest rates limit of 10 percent. What many title loan companies do is register with the state as credit access businesses. This means that instead of providing consumers with loans directly, the credit access business sets the consumer up with a loan through a different lender.
The lender that actually issues you the loan could only charge up to 10 percent in interest. It’s a different story for the title loan company, though, which can now charge you more than that in fees because it’s operating as a credit access business.
You can still obtain a title loan in Texas at an affordable interest rate, but it may not be at 10 percent or less. Fortunately, there is one other option that may allow you to get your title loan for no interest.
Zero Percent Title Loans
One type of title loan that is rare in most states but fairly common in Texas is the zero percent title loan. These work in the same way that any other zero percent APR offer would, including those zero percent auto loans and zero percent credit cards. The lender, which in this case is the title loan company, is giving you a set amount of time to borrow money at a zero percent interest rate.
If you pay the money back by the end of that period of time, you won’t need to pay any interest on it. This is an excellent way to get your loan free of charge. The catch is that if you fail to pay the loan off by the end of the introductory period, you will end up paying interest on it. With zero percent title loans, the introductory period is usually about as long as the standard title loan term in Texas, which is 30 days.
Texas title loan companies that offer zero percent loans almost always require that you refinance the loan if you can’t pay it off by the due date. There are many benefits of zero percent title loans, but their main advantage over other title loans is that initial zero percent interest rate, and you should take advantage if you can. Try to have a payment plan in mind so you can pay off the entire loan before you’re hit with any interest.
Understanding How Much You’re Being Charged in Interest and Fees
With the interest and potentially fees to think about, understanding how much you’re going to pay for your title loan can be difficult. Don’t worry about being confused, though, because Texas state law has you covered here.
The state’s regulations require that any credit access business provides each of its customers with disclosure paperwork when they fill out their Texas title loan application, and this paperwork must include the following information:
- The interest rate on the loan
- Any fees on the loan
- The APR on the loan
- A breakdown of the different consumer debt options and how they compare in terms of cost
- The fees the lender would charge if the customer renewed the title loan
As far as renewing a title loan is concerned, that is an option if you’re short on cash and want to avoid having the lender repossess your Texas title loan assests. How the renewal process typically works is like this:
- You pay the lender any outstanding interest charges and fees you have on the loan.
- You start a new term of the same length with your unpaid loan principal. For example, if your original title loan term was 30 days, you'll have another 30 days before your next payment due date.
- The lender adds the same amount of interest charges and fees that you had before.
The next term essentially costs you the exact same amount that the first term did. It’s best if you don’t need to do this, because it’s easy to fall into a cycle of debt this way, but it’s a nice option to have if you’re low on cash when it’s time to make your payment.
Keep in mind that Texas does have a limit of 180 days for title loan contracts. You can’t renew your title loan any longer than that. If you’ve renewed a 30-day title loan five times, you’ll need to pay it off at the end of that sixth term.
What Happens if a Title Loan Company Doesn’t Disclose This Information?
If you never received this disclosure from your title loan company, you could end up getting your money back. After all, that’s a legal requirement.
It’s best to contact your lender if they didn’t give you the disclosure paperwork. See if they offer to refund any of your fees. If you’re not satisfied with what they tell you, consider going to the media or a lawyer. The title loan company would likely prefer to avoid a controversy.
Right now, Texas title loan interest rates may be 10 percent, but that doesn’t mean much with the fees lenders can charge. Perhaps in the future, the state will change its laws and fix the loophole so customers can only get charged up to 10 percent on their title loans.
Those zero percent title loans can work out well, and no interest for the first term is always a plus. Look into those first when you’re in the market for a title loan.