Arizona Title Loan Laws
While there are a few federal regulations for the title loan industry, for the most part each individual state is able to set up its own title loan laws. This means that how title loans work can vary significantly from state to state. Due to Arizona title loan laws, it’s one of the more borrower-friendly states to get a title loan, although that still certainly doesn’t make a title loan or a registration loan in Arizona an affordable option.
How Title Loans Work
A title loan is what’s known as a secured loan, and secured means that there is a form of collateral attached to the loan. In this case, the collateral on the loan is the borrower’s car, which means the title loan company is able to repossess the borrower’s car if a default on the loan occurs. An unsecured loan, in contrast, has no form of collateral attached, which means the lender has no recourse besides sending the bill to collections if the borrower defaults.
The title loan application process is about as fast as it gets when it comes to loan applications, and borrowers often get in and out of a title loan company’s office in under an hour. A typical title loan application will proceed as follows:
- The borrower goes to the title loan company’s location and fills out some brief paperwork.
- The title loan company inspects the borrower’s vehicle.
- The borrower gives the title loan company their car title.
- The title loan company issues the borrower a loan based on the current market value of their vehicle.
Title loan companies don’t run any sort of credit check on borrowers, making title loans a popular option for people who have bad credit. Of course, that comes at a price, that price being high interest rates. Many title loan companies offer online title loan applications where borrowers enter their vehicle’s information, but this only results in a pre approval, and borrowers still need to go into the title loan company to complete the application process.
Title Loan Requirements in Arizona
The requirements to obtain a title loan in Arizona are fairly relaxed, although they will vary from lender to lender. The only two real requirements according to Arizona title loan rules and federal law is that the borrower have a government-issued ID and a car in their name with a lien-free title. The government-issued ID is necessary so the lender can check the borrower’s age, because it’s a federal law that title loans can only be issued to those who are 18 years of age or older.
The title loan company determines the maximum amount they’re willing to lend the borrower based on the current market value of the borrower’s car. The maximum loan amount will typically be a percentage of the car’s trade-in value, such as 30 or 50 percent, but this will depend on the lender. Arizona title loan laws don’t regulate the maximum amount that a title loan company can lend out through a title loan, so if a borrower has a car with high enough value, they can get thousands or tens of thousands of dollars. The lender verifies the value of the vehicle by performing a quick vehicle inspection before issuing the title loan. This is just to make sure that there aren’t any glaring issues that could detract from the car’s value.
While many states require that the title loan company holds on to the borrower’s car title to secure the loan, Arizona has not required that, so a lender may or may not require the car title from the borrower. The state’s laws are somewhat open to interpretation in this regard, but the consensus is that title loan companies are able to make loans to borrowers who don’t have the titles to the cars they’re putting up as collateral, although this can obviously be risky for the lender.
Arizona title loan laws don’t stipulate that the title loan company checks the borrower’s income or any other information besides their age. However, each title loan company will have its own policies in this regard. Some will simply ask about a borrower’s income and allow the borrower to provide an estimate. Others will require proof of income, in which case a borrower can bring in their latest paystub, a bank statement or another form of income verification.
Other title loan requirements in Arizona, depending on the lender, could include proof of full coverage insurance and even personal references.
Title Loan Interest Rates in Arizona
Arizona is one state that puts a cap on title loan interest rates, through Arizona Revised Statutes Title 44 – Trade and Commerce 44-291. This already makes it more borrower-friendly than many other states which don’t put any sort of limit on title loan interest rates and leave title loan companies free to charge as much as they were. Arizona uses a sliding interest rate maximum, where the maximum monthly interest rate that title loan companies can charge depends on the amount of the loan, with more expensive loans having lower maximum interest rates.
Here are the maximum title loan interest rates in Arizona and the corresponding loan amounts for these maximums:
- If the car title loan is 500 dollars or less, than the maximum monthly interest rate that a title loan company can charge is 17 percent. This means the annual percentage yield (APR) on these title loans is 204 percent.
- If the car title loan is between 501 dollars and 2,500 dollars, then the maximum monthly interest rate that a title loan company can charge is 15 percent. This means the APR of these title loans is 180 percent.
- If the car title loan is between 2,501 dollars and 5,000 dollars, then the maximum monthly interest rate that a title loan company can charge is 13 percent. This means the APR of these title loans is 156 percent.
- If the car title loan is 5,001 dollars or more, then the maximum monthly interest rate that a title loan company can charge is 10 percent. This means the APR of these title loans is 120 percent.
Obviously, these loans are some of the most expensive on the market. Any borrower used to loans through a bank or credit union will likely get sticker shock just seeing the APR on a title loan. However, these interest rates are actually some of the lower ones available in the nation. Since many states don’t have a limit on title loan interest rates, it’s not uncommon to see title loan companies charging monthly interest rates of 25 percent or more, which results in an APR of 300 percent and means that on a 1,000-dollar loan, the borrower is paying 250 dollars every month in interest charges.
Why are title loan interest rates as high as they are? According to lenders, that’s the only way that they can make a profit and afford to issue loans to high-risk borrowers. The fact is that the majority of title loan borrowers are people with bad credit scores who are unable to obtain a loan through a bank, credit union or another financial institution. Title loans fill a need for people in that kind of situation, but they come at a price. They also often leave people trapped in a cycle of debt, as they can only pay off a portion of their title loans each month and end up building a higher and higher bill due to interest charges.
Title loan interest rates in Arizona are one reason why many former payday lenders became title loan companies, after regulation crippled the payday lending industry.
Arizona Title Loan Contractual Requirements
Arizona is one of the few states that has regulations in place regarding contracts for title loans. The state requires that every title loan contract include the name of both parties involved, the borrower and the lender, along with the location of the title loan company and the borrower’s home or business address.
The title loan company must provide the borrower with clear information on either the monthly or annual interest rate for their title loan. If a borrower doesn’t understand their title loan’s interest rate, the lender needs to explain it to them. The borrower can also ask the lender for a document that breaks down the due dates and amounts for their title loan payments. If the borrower pays in cash for any of their title loan payments, then they have the right to request a receipt for the transaction.
Title Loan Terms and Payments in Arizona
While many states limit term lengths for title loans, Arizona is not one of them, and title loan companies can set up terms that are as long as they want with their borrowers. However, the majority of Arizona’s title loan companies still issue title loans with terms that are 30 days in length, which is standard for title loans throughout the country.
If the borrower doesn’t make a title loan payment, then the lender is legally able to charge a late fee of up to 5 percent of the unpaid balance on the installment if it isn’t paid in full by the 10th day after the payment due date.
Like most other states, Arizona allows title loan extensions if the borrower is unable to make their title loan payment in full. This is known as rolling over the title loan, and extension options will depend on the lender. For a standard title loan extension, the borrower will pay only the interest charges on the title loan and carry the loan principal into a new term, incurring another monthly interest charge in the process.
Let’s say that the borrower takes out a title loan for 1,000 dollars for a 30-day term at the Arizona maximum of 15-percent interest, which is likely, because title loan companies almost always charge as much as they can. The loan’s monthly interest would be 150 dollars. If the borrower didn’t have the 1,150 dollars to pay off the loan at the end of the term, they could pay only 150 dollars and start a new 30-day term with a new 150-dollar interest charge. Unfortunately, this ends up occurring with the majority of title loan borrowers, as the average amount of time it takes a borrower to pay off a title loan is eight months. In the aforementioned example, after eight months the borrower would have paid 1,200 dollars in interest for a total of 2,200 dollars paid on a 1,000-dollar loan.
Car Repossession Laws in Arizona
If a borrower defaults on a title loan by failing to make their payment, then that gives the title loan company the legal authority to repossess their car. There could also be other ways that a borrower may default on a car title loan, which will depend on the borrower’s contract. Some title loan companies include in their contracts that the borrower must maintain car insurance on the vehicle used as collateral or put in other requirements. The most common way to default, though, is through missed payments.
The title loan company doesn’t need to provide the borrower with any notice about the car title loan repossession, but car repossession laws in Arizona do prohibit them from breaching the peace in any way. They also must obtain a court order to repossess the car, and show that to the borrower upon request. If the title loan company can’t provide proof of a court order to the borrower, the borrower doesn’t need to surrender their car.
After a repossession occurs, the title loan company is able to sell the vehicle in either a public or private sale. Arizona title loan laws require that the lender sells the car in a commercially reasonable manner. After the title loan company makes the sale, they put that money towards the title loan along with any repossession and sale expenses that it had.
If the sale of the car resulted in more money than the title loan company’s total expenses for the loan, repossession and sale, then it must pay the surplus amount to the borrower. If the sale of the car didn’t result in enough money to cover those expenses, then the title loan company can bill the borrower for the remaining amount. The title loan company must provide a notice of sale to the borrower.
There are a few different options available in Arizona for borrowers after a repossession occurs but before the sale of their cars. Arizona title loan rules allow lenders and borrowers to agree to extend payments, defer payments, renew the unpaid balance or restate the unpaid balance. Which option is available to a borrower will depend on the title loan company.
Arizona Title Loans Compared to Other States
When it comes to title loans, Arizona isn’t the best state, but it’s certainly not the worst, either. Arizona title loan laws provide some form of borrower protection, but despite that, title loans are still a bad deal for borrowers due to their high interest rates.
The reality is that there are very few states where borrowers can get anything approaching a reasonable interest rate on a title loan. Even in Arizona, where title loan interest rates are regulated, the APR is still well over 100 percent. Title loan companies say this is because they are lending to high-risk borrowers, although this explanation doesn’t make much sense. After all, borrowers are putting their vehicles up as collateral for their loans. The title loan company can repossess the borrower’s vehicle in the event of a loan default to recoup its losses. Even if some borrowers make repossession difficult, title loan companies should be able to repossess vehicles for most title loan defaults. And as long as they didn’t issue loans that were too large, they should then make their money back on the vehicle sale.