Why are interest rates so high?
Auto title loan providers are able to skirt around Texas’s usury laws by acting as Credit Access Businesses (CABs), which are unregulated. Essentially, these CABs broker auto title loans between borrowers and third-party lenders. The lenders keep their interest rates below the legal limit of 10%, but the CABs charges high fees to arrange the loan. Through this loophole, Texas borrowers end up paying triple-digit interest rates on their auto title loans.
For example, if you were to take out a $10,000 auto title loan with an interest rate of 10% and the average fee of $23 per $100 borrowed, you’d have an APR of about 192%. That means you would owe your lender $12,453.96 for a 60-day auto title loan. And while this APR is certainly lower than some payday loans out there, the total amount you owe in the end can be staggering.