Car Title Loan Basics: How to Be a Title Lender

By | Oct 14, 2014

Car Title Loan Business 101: A car title loan is a high-interest, one month loan on a vehicle using the owner’s title as collateral. (Note: refer to your state/province for specifics.) Most title loan lenders require the vehicle to be absent any outstanding loans; a “free and clear title.”

Unlike a pawn loan, the beauty of a title loan is that the owner seeking the title loan still has possession of  their vehicle. However, if the owner fails to make timely payments, the title lender will repossess  the collateral. Best practices dictate that, after all repossession  fees, auction costs, re-marketing costs, etc.  are deducted from the sales price, any surplus is refunded to the consumer.

Typically, title loan borrowers pay 10% or more per month in interest! As an example, a $2500 car title loan at 10% interest/month would cost the borrower $250 per month. A 3 month loan would total $750 in interest to the lender. And, at the end of this 3 month example, the car title loan borrower would still owe the lender $2500!

It’s common practice for the lender to require, not only the monthly interest payment be paid, but that the principal be reduced by 10% or more each month as well. So, a $2500 loan at 10% per month plus a 10% reduction in the loan principal would require the borrower to pay $500 to the lender at the end of month one.

The pros for a lender are obvious. Let’s assume a California car title loan lender has been in the business 18 months and has $150,000 on the street. Average loan balance is $2501; that’s 60 total loans on the books. Not too hard to accomplish! $150,000 at 10%/month ( a very low interest rate for the industry)= $15,000 gross revenue. Assume the average title loan is 5 months in length. One employee at $8 to $12/hour plus a spiff, a 300 to 600 sq. ft. footprint, loan management software, 2% – 3% default rate, phone, utilities, advertising, annual licensing and audits, blah, blah, blah… and it’s easy to envision an owner netting $10,000/month before taxes with just one location.

One common misconception held by prospective new title lenders is that they need a storage yard, repo men, special insurance… WRONG! There are bonded, licensed repossession companies and auctions that make it easy for the lender to do nothing more than make a phone call or log in to a website to have a borrower’s vehicle picked-up, refurbished, delivered to the auction and a check mailed to the lender all sight unseen!

The cons for the borrower? Loss of their vehicle that probably has a low book value 2X the amount loaned on their collateral.

Want to know more details about car title lending? We’re car title lenders and consultants. Start here: “How to Start a Car Title Loan Business Course.”

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7 Comments so far
  1. Carl L. October 15, 2014 2:34 pm

    How do I figure out if car title loans are legal where I am?

  2. Mike October 15, 2014 2:35 pm

    These numbers look real good. How much starting capital do I need?

  3. Ken October 15, 2014 2:37 pm

    Thank you! What’s been holding me back is the thought of repoing cars and storing them somewhere. Got the Title Manual downloaded just now. Can I ask questions?

  4. Payday Loan Industry October 15, 2014 2:43 pm

    Yes, it’s a new business with specialists offering services to outsource all the pieces.

  5. Payday Loan Industry October 15, 2014 2:50 pm

    You can “back-into” the numbers. pencil and paper and a few pro forma numbers such as office rent, utilities, insurance, phones, amortized licensing costs, bond… What can you charge a borrower? Depends on where you are. In my Calif. example I used 10%/month. Say you have $50k for the street. Yields $5K month in interest. What are your expenses? $2k? You’re $3k positive. $8k with an employee? You’re neg. $3k. You need another $30K on the street to pay your “nut.” You get the picture.

    of course, we go heavy into the real numbers in our “Car Title Loan Manual” at AutomobilePawn.com

  6. ashish October 23, 2014 6:58 pm

    I’m looking for a company to serve as a lender so I can just broker the loan. Any suggestions? Which companies work with independents like mine?

  7. Payday Loan Industry October 23, 2014 8:51 pm

    Carl,

    Look around you! Are there car title loan companies in your town? Your city? Your state? In your province? If there are, they’re legal. They’ve been around too long for you to be the first. Be glad there is competition! It proves you should start! It affirms there is money to be made!!

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