Tennessee Title Loan Laws
Auto title loans are a very popular option for those who have an immediate need for cash but may have no access to other types of financing. Other advantages to title loans are that they require no credit check, they may not require any income verification, and many applications can be completed online.
Auto title loans are legal in some states, but not all 50 states allow them. Laws regarding auto title loans vary by state, and some states do not allow them because the high interest rates are regarded as usury. Seventeen states in the U.S. permit interest rates in the triple digits and some states place no cap on the fees and interest rates title loan companies charge.
In Tennessee, borrowers must be at least 18 years of age in order to obtain a Tennessee title loan, and the title to the vehicle must be in the borrower's name. Vehicles must be owned outright and not encumbered by a lien. Some lenders have stipulations regarding the amount and frequency of title loans that they will give to a specific borrower.
Borrowers do not need a checking account nor do they need a driver's license, although a photo identification is required. Usually, the application and approval process takes about 30 minutes. As long as borrowers keep their loans in good standing, they may continue to drive their vehicles.
Tennessee Title Pledge Act
The TN Title Pledge Act enabled licensed lenders to accept the title to personal property as a guarantee against a 30-day loan. The TN Title Pledge Act provides for renewals of the loan every thirty days, providing that the loan agreement is not in default.
Tennessee Title Loan Laws Regarding Interest and Fees
Tennessee title loan laws cap the interest rate at 2 percent monthly, although fees may be charged in addition to the interest rate. These fees are ostensibly for administrative and overhead costs, and are limited to less than one-fifth of the principal on the loan.
Title loan rules in Tennessee prohibit lenders from charging borrows for any insurance that may be required in connection with the loan. Lenders are also prohibited from charging loan prepayment fees or penalties.
Tennessee Title Loan Laws Regarding Duration and Renewability
Tennessee title loan laws cap loans at $2500 and they can only be written for an initial period of 30 days. However, loans can be renewed for another thirty days provided the loan is in good standing and not in default. After the second renewal, the borrower must pay at least 5 percent of the principal and corresponding interest and fees before the loan can be renewed again. Subject to these stipulations, borrowers can continue renewing their title loans and may be able to set them up to renew automatically.
For additional information regarding the duration and renewability of Tennessee title loans, please click here.
Title Loan Rules in Tennessee Regarding Lender Accountability
Title loan laws in Tennessee require that lenders be licensed with the state, and continued licensure is contingent on the results of an annual audit. Title loan lenders are required to record the license, vehicle identification number, make, model, and year of the vehicle. In addition, the borrower must provide his or her name and address, as well as his or her date of birth; the lender will record a physical description of the borrower in his or her loan file.
Detailed loan records are also kept regarding original principle, original date the loan was written, interest and fees, maturation date, and renewals. Title loan companies are required by law to protect the confidentiality of information provided to them by their borrowers.
The Tennessee Title Pledge Act states that any title loan made by an unlicensed lender is invalid and exempts the borrower from liability for interest, fees, and costs. The borrower is also entitled to reasonable attorney fees in order to recoup his or her payments to the unlicensed lender.
Tennessee Title Loans Repossession Laws
The state of Tennessee is different from some other states in that the borrower surrenders the title of the vehicle to the lender at the time the loan documents are signed. The lender retains the title until the title loan is repaid in full, including fees and interest charges, or until the loan permanently defaults.
When a loan becomes due and the scheduled payment has not been made, the lender will usually send the delinquent borrower a notice that the loan is past due. The note will also include any amounts due, and dates of repossession and sale. Legally, lenders are entitled to repossess the vehicle when the first payment is not made on time although this is not mandated by state law.
In the event that the borrower fails to repay the loan in the agreed-upon timeframe, Tennessee title loan repossession laws allow the lender to repossess the vehicle and seek redress from the borrower for the cost of repossession. The lender must keep the vehicle for 20 days after the onset of default, in order to give the borrower time to repay the loan and regain possession of the vehicle. After the 20 days have passed, the lender is entitled to sell the vehicle to a third party, but is not allowed to purchase it himself or herself, whether it would be for personal use or business use.
After a lender has repossessed a vehicle, he or she will usually send a notice of the time and date that the vehicle will be sold. Lenders are required by law to sell a repossessed vehicle in a commercially reasonable manner, such as through a private sale or at a public auction. Additional information on repossession can be found here.
If the sale of the vehicle does not cover the balance owed on the loan, the borrower may not be liable for the balance. If the vehicle sells for more than the balance of the loan, the lender may be required to refund the difference to the borrower. Although this scenario is unlikely, state law will play a factor in the lender's decision; some states require a refund to be made to the borrower and some do not. Typically, vehicles sell at auction for significantly less than their fair market value.
If a lender states that he or she will not pursue legal remediation in the event of a shortfall on the sale, it is advisable to obtain this statement in writing since a verbal commitment may not be legally binding should the matter go to court.
Title loan companies are not in the used car business and would rather have the loan paid in full than to pursue repossession. Those borrowers who have difficulty repaying their loans should attempt negotiation with the lender so that a mutually satisfactory solution can be reached. Remember to approach the lender in a professional and conciliatory manner. Lenders are more likely to work with borrowers if the borrower is polite and professional.
Repossession companies are governed by state law. Under Tennessee state law, a repossession agency:
- Can repossess any vehicle encumbered by a Tennessee title loan, if the loan is in default
- Cannot enter a borrower's home without permission
- May not use violence
- May not use entrapment to obtain access to a vehicle for purposes of repossession
- Does not need to notify the borrower prior to repossession
- Must store any personal items that are in the vehicle and notify the owner of the date the vehicle will be sold and where personal items may be claimed
For more information on the Tennessee repossession process and the rights of borrowers whose vehicles have been repossessed, click here.
How to Avoid Tennessee Title Loan Repossession
Sometimes, circumstances make a title loan unavoidable. Family emergencies, personal injuries, and many other events can cause a temporary cash shortage. It is important to remember that although a title loan may be available, it should be used as an emergency solution only; it should not be used as a ready source of additional funds.
One mistake made by many borrowers is underestimating the length of time it will take them to repay the loan. This can result in the loan becoming delinquent and the vehicle being repossessed. It is better to estimate conservatively when applying for a title loan so that payments are met timely, additional fees and interest charges are avoided, and vehicles are not repossessed. Sometimes the language used by a title loan company may be unclear, as in this case. Whether it is a title law in Tennessee or in any other state, borrowers should be very clear on the amount they are paying and the total cost of extending the loan in case the entire amount cannot be repaid according to schedule.
Some states are implementing more regulations on the vehicle title loan industry in order to safeguard consumers. For more information on this topic, click here. Understandably, some title loan companies are less than enthusiastic about tighter regulations on their industry, as shown in this personal experience.
Cancelling a Title Loan
Unless the borrower is a member of the U.S. military, Tennessee title loans are binding agreements, just as any other legally signed contract would be. The United States D.O.D., or Department of Defense, passed a law that prohibited title loan companies from lending to members of the military. For civilians, however, no such law exists and even if a vehicle is no longer in operating condition, the loan must be repaid. It is the lender's option to repossess the vehicle and not all lenders are willing to pursue that solution.
Many lenders prefer to pursue a defaulted loan through the legal system or through a debt collection agency. Defaulting on a title loan can seriously and adversely affect a borrower's credit rating. Since many employers run a credit check on prospective employees, a poor credit rating can negatively impact an individual's job prospects. The statute of limitations on breach of contract in Tennessee is six years and starts on the date of the last payment. However, any contact with a debtor may reset the date and the six years may start anew.
Tennessee title loans that have gone to collection or lenders who have received a judgment against a borrower may legally endeavor to collect on the debt. However, their behavior is governed by various Tennessee state laws and several federal laws. By law, creditors may not:
- Telephone borrowers after 9 p.m. or before 8 a.m.
- Use the telephone to harass or intimidate a borrower; profane language is prohibited
- Use misrepresentation or deception to attempt to collect a debt
- Threaten legal action if none is intended
Anyone who signs for a Tennessee title loan should be prepared to repay the loan in full, including interest charges and fees.