Delaware Title Loan Laws
Making it from paycheck to paycheck can be a stressful experience. This is particularly true for the many Americans who have no emergency savings. For millions of people, a medical emergency or necessary auto repair can result in serious financial problems. This is exactly why many people opt to take out a title loan. If you are considering taking out a title loan, it’s important to understand Delaware title loan rules.
Around the country, numerous states have made title loans illegal. Also known as pink slip loans and title pawns, these loans are short-term in nature. In other states, title loans remain legal, but there are regulations in place to protect consumers. This is why it is so important to understand Delaware title loan laws. For instance, in some states, there are no caps on interest rates to limit the amount of interest consumers must pay.
First, it should be understood that in Delaware, car title loans are legal. Furthermore, there are no caps on the amount of interest that lenders may charge. Even so, there are numerous regulations in place. These Delaware title loan rules are in place to protect consumers and ensure that title loans do not become a burden to borrowers.
Delaware Title Loan Rules
Many consumers often have questions about whether they are able to qualify for a title loan. It is relatively easy to obtain a title loan in Delaware. One of the most common reasons that many people are not able to qualify for traditional loans from banks is because of bad credit or no established credit. This is not a problem when applying for a title loan. There are no required credit checks when applying for title loans in Delaware. All that is necessary to be approved for a title loan is a lien-free title in your name. You may also be required to show a valid government-issued identification.
How Are Title Loans Used in Delaware?
The reasons for taking out title loans in Delaware can be numerous and varied. Since title loans are short-term, most borrowers take out title loans to handle emergency expenses. For instance, when a borrower needs a sudden vehicle repair and has no savings, he or she can take their original vehicle title to a lender and borrow up to a certain percentage of the vehicle’s value. The exact amount of money that can be borrowed will vary based on several factors, including the value of the vehicle. Most title loans vary between 25 percent to 40 percent of the vehicle’s value. Most title loan lenders are able to accept all types of vehicles as security for title loans, includes recreational vehicles and motorcycles. All a borrower needs to do is present the original title to the vehicle along with an extra set of keys when applying for a title loan.
Consumers in Delaware should be aware that title loans are typically used for short-term financial needs. It is imperative for prospective borrowers to make certain they will be able to pay back the title loan before the due date. In some instances, lenders may require borrowers to provide proof of income before approving a title loan request. Borrowers may not be required to have a job in order to be approved for a loan. Possible income sources for being approved for a title loan may include:
- Social Security
- Workers’ Compensation
- Child support
Failing to pay back a title loan by the due date or meeting other terms of the loan agreement could result in the borrower’s vehicle being repossessed.
Application Requirements for Title Loans in Delaware
Before completing a title loan application, consumers should be aware of how the application process works. The application process may vary among lenders. Borrowers are typically required to have physical possession of the motor vehicle title. This title must usually be surrendered to the lender. Funds from an approved loan will usually be issued in the form of a cash, check, or money order.
When completing a title loan application, it will usually be necessary for the borrower to supply the following information:
- Full legal name
- Contact number
- Make of the vehicle
- Vehicle model
- Vehicle mileage
What Happens When Your Car Gets Repossessed in Delaware?
It should be understood that when you take out a title loan in Delaware, if you fail to pay back the loans according to the loan terms, your vehicle may be subject to title loan repossession. This is why lenders require you to hand over the original vehicle title and a set of keys. This way, under Delaware title loan repossession laws, if you fail to pay back the loan, it will be easier for the lender to repossess, or take, your vehicle without the need to obtain a tow truck.
Interest Matters and Delaware Title Loan Laws
According to Delaware title loan rules, lenders have the option to charge any interest rate they like. Unlike other states, there are no limits on title loan interest rates. The average interest rate for title loans in Delaware is 25 percent per month. This equals out to an annual percentage rate of 300. This means that a borrower who takes out a $1,000 title loan will pay an additional $250 per month in interest until the loan is paid off. Over the course of a year, that would be $3,000 in interest for a $1,000 loan.
Delaware Title Loan Laws and Required Disclosures
Prior to signing a title loan agreement, a borrower must be presented with certain legal disclosures by the lender. These disclosures are required by law to be presented in a conspicuous format. If a lender fails to make these disclosures, the borrower has the legal right to rescind the loan at any time. This right is in effect for up to one year from the time of the last payment date on the original loan agreement. Under this law, the borrower is only required to pay back the outstanding principal of the loan. Any interest and fees that exceed the unpaid loan proceeds must be refunded to the borrower.
Under Delaware title loan laws, lenders are required to make the following seven disclosures:
- The borrower must be advised that the loan they are considering taking is only for short-term cash and should not be considered as a solution for long-term financial issues.
- The borrower is not compelled to complete the loan agreement because disclosures have been made.
- By signing the title loan agreement, the lender will receive a security interest in the borrower’s vehicle. If the borrower fails to meet the terms of the title loan agreement, the lender may repossess the vehicle and sell it.
- If the lender does take possession of the vehicle, the borrower may lose equity in the vehicle.
- The borrower has the right to rescind the title loan agreement at no cost for any reason at any time leading up to the end of the business day after the day on which the loan proceeds were disbursed. This can be done by returning the full amount of the loan to the lender.
- The borrower has the right to receive information regarding credit counseling services. This information is distributed by the Office of the State Bank Commissioner.
- Borrowers may file a complaint with the Office of the State Bank Commissioner if they believe the lender has violated any law regarding the loan.
Delaware Title Loan Laws and Rollover Limits
On average, title loans are rolled over eight times. This means that the borrower states he or she is not able to pay off the loan within a month and rolls it over to the next month. When this happens, the borrower pays the interest on the loan and rolls the loan over to the next month. In Delaware, borrowers may not roll over a title loan that would extend the repayment period for the loan to more than 180 days, which equals six months. The clock begins ticking on the date that the borrower received the loan funds.
Delaware Title Loan Rules and Workout Agreements
In many states, lenders have the right at any time to repossess the vehicle of a borrower who has defaulted on a title loan. Under Delaware vehicle repossession laws, this is not the case. In laws, in which there are no regulations regarding repossession, the lender may repossess the vehicle even if the borrower is a single day late on the loan. Under Delaware vehicle repossession laws, lenders are required to offer the borrower what is known as a workout agreement before they are legally allowed to repossess the vehicle. In a workout agreement, a net reduction of a minimum of 10 percent monthly on the outstanding loan balance is required.
The borrower is given 10 business days during which he or she may accept the agreement before the lender is allowed to repossess the vehicle. This provides the borrower with some time to obtain the funds necessary to pay off the loan. Under the rules in Delaware, the lender is not legally allowed to take the borrower’s vehicle unless he or she defaults on the workout agreement.
Interest Payments After Repossession
If you have questions about what happens when your car gets repossessed in Delaware, you should also be aware of how interest applies following repossession. Under Delaware title loan repossession laws, once a vehicle is repossessed in Delaware, the lender is required to cease charging interest on the loan. You should also understand how proceeds from the sale of a repossessed vehicle are handled.
After a lender has repossessed a vehicle, the vehicle may be sold in order to recoup the outstanding loan balance. In some states, lenders are not required to keep any amount from the sale that exceeds the amount owed by the borrower. This is the case in Delaware. Furthermore, if the sale of the vehicle does not net the full amount owed, the lender is not allowed to continue charging interest.
For instance, if a borrower owes $1,000 on a title loan and the vehicle is sold for only $800, under Delaware title loan laws, the lender is not allowed to pursue the borrower for the remaining $200 balance. Additionally, the lender is not allowed to continue charging interest on the remaining balance of the loan. Basically, once the vehicle is sold, the borrower no longer needs to worry about the loan.
The lender is also required to send the borrower any additional funds received for the vehicle. In some states, if a lender sells a vehicle for an amount above and beyond the balance of the loan, they are allowed to keep the difference for all of their troubles. In Delaware, if a vehicle is sold for $4,000 to cover a $1,000 balance, the lender is not allowed to keep the additional $3,000.
After the vehicle is sold, the lender is required to send the borrower a written explanation of how the proceeds from the sale of the vehicle were handled. The lender is also required to explain to the borrower whether there was a surplus or a deficit of funds. This explanation is required to also contain a notice explaining that all of the outstanding proceeds of the loan have seen satisfied.
Licensed Title Loan Lenders in Delaware
Prior to applying for a title loan in Delaware, borrowers should be certain the lender is actually licensed to issue title loans in Delaware. Along with the annual license fee that is required under law in Delaware, every licensee that makes short-term loans is also required to pay an annual loan license fee surcharge for each licensed office. This fee is $1,500.
Delaware Title Loan Class Action
Borrowers who feel as though a lender may have violated the law in regards to a title loan may have the right to seek legal recourse, including the opportunity to participate in Delaware title loan class action lawsuits.
Prohibition of Deceptive Advertising
Lenders are not allowed to advertise nor are they allowed to market the availability of title loans that violate the Consumer Fraud or Deceptive Trade Practices sections of Chapter 25 of Title 6. Furthermore, lenders are not allowed to advertise any title loan interest rates that are lower for an introductory or initial period if the interest rate will increase during any rollover period for the loan.
Federal Fair Debt Collection Practices Act
Lenders who employ debt collectors to collect outstanding debts for a title loan are not allowed to knowingly permit the debt collector to act in any way that would violate the Federal Fair Debt Collection Practices Act.
Prohibition of Threat of Criminal Prosecution
Lenders are not allowed to threaten or seek to threaten criminal prosecution of a borrower in relation to nonpayment of any outstanding loan balance. This includes the unpaid return of any check.
Lenders and Short-Term Consumer Loan Databases in Delaware
Before entering into a short-term title loan with a prospective borrower, lenders are required to access the short-term title loan database in Delaware in order to determine whether the prospective borrower currently has any outstanding short-term loans and if so, the number of such loans the borrower currently has outstanding. The lender should also access the database to determine whether the borrower may be eligible for a short-term loan under state regulations. Furthermore, the lender should use the database to determine any other information that may be necessary in order for the lender to comply with state regulations.
Immediately after entering into a short-term title loan with a borrower, the lender is required to submit information regarding the loan to the database in an accurate manner. This information includes the name of the borrower, his or her address, Social Security or employment authorization number, and the borrower’s gross monthly income. Submitted information should also contain the transaction amount, the annual percentage rate for the transaction per requirements of the federal Truth in Lending Act. The lender is also required to enter the transaction date and the anticipated date the loan will be paid off. Lenders are also required to submit to the database in a prompt fashion the date that the loan is either paid in full or satisfied. The lender is also required to enter the date that a borrower defaults on a short-term title loan as well as the amount of the default. Lenders are also required to correct any incorrect information in a prompt manner.
Furthermore, lenders are required to continue entering and updating all required data for any title loans that are outstanding and that after not expired following the date on which the lender no longer holds a license. Within 10 business days after no longer making such loans, lenders must provide a plan explaining how they will continue to meet compliance regulations as required by law.
All information that might identify a borrower must be deleted from the database within twelve months after the borrower’s loan has been paid in full or otherwise satisfied.
When to Use Title Loans
Title loans are often considered by consumers who are facing short-term financial problems. As such, title loans should only be considered as a short-term lending solution. By understanding Delaware title loan laws, consumers can make an educated decision regarding whether a title loan is the right solution for their current needs.