Illinois Title Loan Laws
Title loans can be a short-term solution when you need cash quickly. Even so, if you are considering taking out a title loan in Illinois, it’s important to have a solid understanding of Illinois title loan laws.
Who Can Issue Title Loans in Illinois?
Only licensed lenders may issue title loans in Illinois. A lender must have a specific license to write an installment loan in Illinois. Consumers may wish to verify that a lender is actually licensed before agreeing to take out a title loan. A complete list of lenders with Consumer Installment Licenses can be obtained through the Illinois Department of Financial and Professional Regulation.
Title Loan Laws in Illinois
One of the most important things to understand when taking out a title loan is that you are using the title to your vehicle to secure your loan. Based on Illinois title loan repossession laws, you could potentially lose your vehicle if you fail to pay back the loan. This means that if you do not meet your loan obligations, this lender has the right to actually repossess your vehicle, sell the vehicle, and put the proceeds from the sale toward your outstanding loan amount.
Among the most common reasons that many people choose to apply for title loans is because this type of loan offers a fast way to obtain cash regardless of your income. For instance, even if you have bad credit and cannot qualify for a loan from a traditional lender, you may still be able to be approved for a title loan. While title loans are not legal in some states, they are legal in Illinois. With that said, there are Illinois title loan rules that do apply. Prior to applying for a title loan, it is advised that you become informed about title loan laws in Illinois.
Illinois Title Loan Rules
Lenders in Illinois are required to calculate the interest on title loans as simple interest. This means that the lender is not allowed to charge a customer interest on any outstanding interest or interest fees that have not been paid. In calculating the fees for a title loan, the lender will multiply the principal of the loan by the interest rate. For instance, if a customer takes out a $1,000 loan and the monthly interest rate is 25 percent, then the lender will multiply $1,000 by 25 percent and then multiply that by the number of months of the loan term. In the case of a six-month loan, the total cost of the loan would be $2,500.
In regards to Illinois title loan laws, it should also be understood that loan payments for title loans must be amortized. This means that the monthly loan payments must be relatively equal. This is not the case in many other states, where lenders are allowed to create balloon payments. A balloon payment is a large payment that is typically due at the end of the loan term. In the case of balloon payments, the lender might charge $250 in interest payments for the first five months of the loan, with the borrower owing a total of $1,250 for the final balloon payment at the end of the loan term. Balloon payments are not allowed in Illinois. Consequently, under title loan laws in Illinois, lenders are required to divide the total amount of the loan (including interest) by the number of months of the loan term. This makes each monthly payment roughly the same.
It should also be understood that the monthly payment for a title loan in Illinois cannot total more than half of the borrower’s gross monthly income. As a result, this rule can affect the total length of the loan as well as the amount of money the customer is able to borrow using a title loan. Also, for this reason, Illinois title loan lenders are required by state law to obtain proof of a borrower’s income before he or she can borrow money.
Regulations Regarding Interest on Title Loans in Illinois
In considering taking out a title loan, borrowers should be aware of any relevant regulations that apply to interest on title loans in Illinois. For instance, there are no caps on interest rates in the state of Illinois for title loans. This means that lenders can generally charge any interest rate for a title loan. For this reason, borrowers should carefully consider the terms of a loan before agreeing to that loan.
It should also be understood that borrowers may have the option of refinancing their title loan in Illinois. This may sometimes be an option if a borrower finds he or she is not able to pay off the total amount of the loan by the due date. When a title loan is refinanced, the borrower will usually roll over the principal of the loan to the next month. There are some regulations that relate to refinancing a title loan in Illinois. Borrowers are only allowed to refinance a title loan if they have paid off at least 20 percent of the loan principal. This means that if you take out a $1,000 title loan, you will need to have paid off $200 before you are eligible to refinance the loan.
Illinois Title Loan Repossession Laws
Before taking out a title loan, you should also understand the consequences of not paying back your loan. In Illinois title loan late payment could potentially result in having your vehicle repossessed. One of the most common questions that many people have about a title loan is what happens when your car gets repossessed in Illinois. If you do not pay back your title loan according to the terms of your loan agreement, the lender does have the right to take away your vehicle, sell it, and apply the proceeds of the sale toward your unpaid loan balance.
Repossession of a vehicle in Illinois can occur if you miss a payment on your title loan or if you do not adhere to other requirements of your loan. For instance, if your lender requires you to maintain insurance on your vehicle and you fail to do so, you are technically violating the terms of your loan agreement. This means that your vehicle could be subject to repossession. Also, under Illinois vehicle repossession laws, the lender may not keep any surplus received from the sale of a repossessed vehicle. This means that if you owe $1,000 on your title loan and the lender sells your repossessed vehicle for $5,000, then the lender is required under law to refund the $4,000 surplus to the borrower. This is not the case in all states. In other states, title loan lenders are allowed to keep any amount of the sale above and beyond the unpaid loan balance.
Also, in other states, title loan lenders may be required to keep an extra set of keys to the borrower’s vehicle. This is not the case in Illinois. Instead, if your vehicle is repossessed, the lender may simply have the vehicle towed. The good news is that lenders are required to inform borrowers that they are going to repossess a vehicle and provide the borrower with the opportunity to actually bring the vehicle to the lender. This gives the borrower the chance to remove any personal items from the vehicle before it is repossessed by the lender as well as make alternative transportation arrangements.
Prior to the vehicle being sold, a borrower has the option of paying off the outstanding balance on the loan or catching up on missed payments. The latter option is only available is the borrower has paid off a minimum of 30 percent of the original loan balance.
If the vehicle is sold, the lender has the option to take out any fees related to repossessing the vehicle in addition to the unpaid loan balance. Fees must be reasonable. This means that a lender is not allowed to claim that repossession fees are equal to the loan surplus simply to keep it.
All remaining proceeds from the loan must be sent to the borrower. In the event the proceeds from the sale of the vehicle are not sufficient to cover the unpaid balance of the loan, the lender does have the option to sue the borrower for the remainder.
It’s imperative for consumers to never take out a title loan until they fully understand Illinois title loan laws. Title loans are typically intended for emergency financial needs. It’s a good idea to ensure you know you will be able to make the loan payments prior to taking out a title loan. For this reason, a title loan lender will generally require borrowers to have a regular source of income before approving a title loan request. Title loan applicants may not necessarily need to be employed to be approved for a title loan. Regular income sources might include disability payments, Social Security, alimony, child support, Workers’ Compensation payments, or some other regular source of income. Borrowers are usually required to provide lenders with proof of their income.
Borrowers should be fully aware that if they fail to repay their title loan or if they do not adhere to all of the terms of the loan agreement, they could be at risk for having their vehicle repossessed.
Requirements for a Title Loan Application
It’s also important to understand the requirements for taking out a title loan application. In Illinois, borrowers must physically possess the title to the vehicle they plan to use to secure their title loan. When taking out a title loan, the borrower will provide the title of the vehicle to the lender. The lender will then provide the borrower with a check, money order, or check equaling the amount of the loan.
Under Illinois law, the lender is also required to provide the borrower with information regarding their title loan. This includes a pamphlet published by the Department of Financial and Professional Regulation-Division Financial Institutions. Additionally, the lender is required to provide the borrower with a contact number regarding debt management information.
When completing a title loan application, consumers may be required to supply the following information:
- Full legal name
- Contact number
- Make of the vehicle
- Vehicle model
- Vehicle mileage
Illinois Title Loan Laws and Title Loan Terms
Under Illinois law, the amount of money that a consumer may borrow using a title loan is capped. This means that consumers may not borrow more than a certain amount using a title loan. In Illinois, title loans are capped at $4,000. This does not necessarily mean that a consumer will be guaranteed to borrow $4,000. The amount of money that a consumer may be allowed to borrow will be based on a number of factors, including:
- Value of the vehicle
- Requested loan amount
- Term of the loan
According to the Illinois Department of Financial and Professional Regulation, title loans should only be taken out for short-term purposes.
Satisfying Title Loan Terms
Borrowers in Illinois have the option to pay off the full amount of their title loan prior to the due date of the loan. Doing so can help borrowers to avoid paying any additional interest. After a borrower has paid off a title loan, the lender is allowed 24 hours to release the lien on the vehicle. The lender is required under state law to provide borrowers with a proof of lien release as well as return the borrower’s vehicle title.
It should be understood that if the loan is paid off with a check, the lender may be allowed up to five business days to provide the lien release. This is to ensure that the borrower’s check has actually cleared the bank before releasing the lien on the vehicle title.
How Many Payday Loans Can You Have in Illinois?
After a consumer has paid off their title loan, he or she must wait a minimum of 15 days before being allowed to take out another title loan. Lenders are required to search a database in Illinois to verify that the applicant does not have any outstanding title loans or have paid off a title loan within the prior 15 days. Consumers are only allowed to have one title loan in Illinois at a time.
Illinois Title Loan Laws-Refinancing Loans
Consumers may have the option to refinance their title loans under certain circumstances. The borrower will need to have paid a minimum of 20 percent of the original loan amount before being allowed to refinance. Under no circumstances will the principal of the new loan be allowed to exceed the prior outstanding old loan balance. Consumers should also be aware that a lender has the right to increase the interest rate for the new loan as well as add fees to the total amount owed. According to Consumer Federation of America, consumers may only refinance a title loan once in Illinois.
Getting Out of a Title Loan
Consumers may sometimes have questions about how they can get out of a title loan. It is important to understand that when taking out a title loan, borrowers are required to sign a contract with the lender. Under this contract, the borrower agrees to pay back the money borrowed from the lender or the lender has the right to take the vehicle. For this reason, there are no easy ways to get out of the terms of a title loan. When possible, it is best for consumers to pay back the full amount of the title loan as quickly as possible to avoid paying additional fees.