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Car title loans have increased in popularity over the years, especially after the recession hit a few years back. It is easy to see why this type of loan is on the rise.
Safer than payday loans, it allows borrowers to receive thousands of dollars within 24 hours or less without having to rely on credit. Many people faced with ugly credit histories or rigid time constraints have no other option than to turn to this quick short-term lending method.
But, what do people really use it for? Do they use it for personal uses or small business expenses? For unplanned emergencies or for everyday spending?
Unfortunately, there is not a whole lot of current data out there on title lending, but a 2007 FDIC survey conducted in New Hampshire, New Mexico, Kansas, Virginia, and Oregon reveals the main reasons why consumers took out title loans back then. The results indicated that car title loans were used mostly for personal uses – for both emergencies and everyday spending:
Although surveys like this one provide a good starting point, many argue it is not accurate. Borrowers may not be reporting the actual reason they are taking out the loan. Some people may be taking out the loan for something a bit embarrassing like gambling losses but report that they use it to tie them over after they missed a paycheck.
One out of every five people who take out a car title loan is self-employed. Many title lenders report that borrowers use their loans to fund their small businesses, and there is a bit of controversy over how true this is – mostly because there have been so few surveys conducted and with very unspecific data.
As Jim Hawkins points out in his paper, Credit on Wheels, someone may report that they used the money to help buy a truck, and that truck might be used for his or her landscaping business and as a second car for the family. The surveyed individual may report that the loan was taken out for business or personal use.
Hawkins conducted his own survey in Texas in which he asked borrowers if they were taking out a car title loan for a business or personal expense, clarifying that paying for gas to work was a personal expense. 25.71% reported that they were using the title loan at least in part for business expenses.
When title lending registrations go to the state courts, title lenders often argue that their loans are used for small businesses and that the service is needed to propel the economy. While a compelling argument, it is difficult to discern how exactly how many people really do use the loan for small business expenses. The little data that is out there indicates that it is a much smaller percentage than the lobbyists claim.
In short, there are a wide variety of reasons people take out car title loans to tie them over. Every individual is in a unique circumstance with different priorities from the next person. Title loans are often used as a last resort to keep people afloat when they hit a financial rough patch.
There are some expenses that are too important to ignore, expenses that "the system" does not take into account. Title loans allow the freedom for people to get the money they need quickly, without hassle or questions asked.
** No credit checks on title loans, personal loans subject to credit check.