A car title loan is when you borrow money, using your car title as collateral. If you don't pay back the money, the loan company gets your car.
Margaret Sims worked hard to get her car paid off. She owns it free and clear … almost. In March, Sims walked into a LoanStar Title Loan office and borrowed $3,000.
"I borrowed the money because I was in a desperate situation. When I had lost my job, I was trying to pay bills, pay lights, take care of my job all at the same time," she said.
She got a title loan. Title loans do not work like car loans or mortgages. If you don't pay off the entire amount you borrowed by the next month, you must once again pay the finance charge.
In Sims' case, the finance charge was $812 a month. Her annual percentage rate was a whopping 315 percent.
"I didn't think about the interest rates," she said.
She was never able to make that $812 payment, so LoanStar Title Loan repossessed her car.
She had no choice: she had to pay more money to get it back, but she was still in debt to that original $3,000 loan. Once again, she found herself owing $800 a month interest.
Cindy Clifford handles LoanStar Title's public relations. Clifford said her client provides a good service to a market that needs it. She added LoanStar Title is not in the business to repossess vehicles.
"We value our customers and the last thing in the world we would ever, ever, ever want is to repossess someone's vehicle," she said.
One in 10 borrowers lost their car to auto title businesses in the first half of 2012, according to data from the Texas Office of Consumer Credit Commissioner. The data also shows 75 percent of borrowers could not pay back their loans on time.
"The fact is that if somebody needs cash and needs a loan, there aren't other places for people to go if they are in an emergency situation," Clifford said.
Sims said she didn't feel like she could go to her bank.
"I mean I'm embarrassed. I'm hurt. I'm stressed out. I just want my life back," she said.
There are alternatives to title and payday loans. Just call Bank on Houston at 832-393-3406.