How do title loans work in Michigan?

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Title loans are not legal in Michigan, so you are unable to get one in the state of Michigan. [1]

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How do title loans generally work?

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As mentioned, title loans are not legal in Michigan, but here is a general overview of how they work:

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1. Loan Application: The borrower applies for the loan with a lender who provides title loans. This can be done in person at a loan store or online, depending on the lender.
2. Vehicle Assessment: The lender assesses the value of the vehicle whose title will be used as collateral. The loan amount typically depends on the vehicle's value, but it is usually only a fraction of the total worth.
3. Agreement Terms: The borrower and the lender agree on the loan amount, interest rate, fees, and repayment terms. Interest rates for title loans can be exceedingly high, often topping 100% APR (Annual Percentage Rate) [2], making them much more expensive than most other loan types.
4. Exchange: The borrower hands over the vehicle title to the lender in exchange for the loan amount. Though the lender holds the title until the loan is repaid, the borrower can continue to use the vehicle.
5. Repayment: The borrower must repay the loan amount plus interest and fees according to the agreed repayment schedule, which could be a single lump-sum payment or multiple payments over a set period. Repayment periods for title loans are typically short, often 30 days [3].
6. Consequences of Non-Payment: If the borrower cannot repay the loan, the lender has the right to repossess the vehicle and sell it to recover the outstanding loan amount. Repossession can lead to additional fees for the borrower.

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It's worth noting that there have been legislative efforts and regulatory attempts to control or restrict the practices of title loan companies in various states due to concerns about their high costs and predatory nature. Consumers should be extremely cautious with title loans, thoroughly understanding the terms and recognizing the risks involved. It's also advisable to consider alternative financing options before opting for a title loan.

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Sources

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[1] https://www.michigan.gov/consumerprotection/protect-yourself/consumer-alerts/auto/auto-title-loans#:~:text=This%20is%20illegal%20in%20Michigan.&text=You%20might%20think%20an%20auto,and%20may%20lose%20their%20vehicle.

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[2] https://www.consumerfinance.gov/ask-cfpb/what-is-a-payday-loan-en-1567/

[3] https://assets.website-files.com/62472df614c028caeceb6a85/62fce8153e173c6abc1e0d2d_201605_cfpb_single-payment-vehicle-title-lending.pdf

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Disclaimer: Yendo is not a provider of financial advice. The material presented on this page constitutes general consumer information and should not be regarded as legal, financial, or regulatory guidance. While this content may contain references to third-party resources or materials, Yendo does not guarantee the accuracy or endorse these external sources.

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