Virginia Title Loan Laws
Since the federal government doesn’t place many of its own restrictions on title loans, every state governs title loans its own way, which means that regulations can vary significantly from state to state. In Virginia, title loans are governed by title 6.2 of the code of Virginia, which goes over the rights and responsibilities of borrowers. While title loans tend to be expensive and an easy way to fall into a debt trap in any state, Virginia is one of the most borrower-friendly options, as it has several consumer protections in place.
How a Title Loan Works in Virginia
A title loan in Virginia is the same as a title loan in any other state in that it’s a secured loan that’s dependent on the value of your car. Your car secures the loan, as it’s the collateral, and the title loan company is able to repossess your car in the event that you default on your loan. The value of your car determines the maximum amount that the title loan company will lend you and also whether or not you get approved for the loan.
There’s no credit check during the title loan application process, and the process moves very quickly, with borrowers often obtaining their loans within 30 minutes of when they walked into a title loan company’s office. For the convenience and the lack of a credit check, title loans tend to be a very popular option for borrowers with bad credit and those who are in need of money quickly. The old adage “desperate times call for desperate measures” definitely applies when you walk into a title loan company’s office.
It’s a simple process to obtain a title loan, and you can get one by completing the following steps:
- Go to a title loan company’s office with your car, your car title and your government-issued ID.
- Fill out the paperwork that the title loan company provides.
- Allow the title loan company to perform an inspection of your vehicle.
- Provide the title loan company with the title to your car.
- Obtain your title loan.
Now, you may find some title loan companies that offer what they call an online title loan application. In actuality, these are one of two things:
- A form where you enter your vehicle’s information, typically including its year, make, model and approximate mileage. The title loan company can then pre approve you for a loan based on your vehicle’s estimated value.
- A form where you enter your contact information, typically including your name and phone number. The title loan company will then have one of its loan representatives call you back to answer any questions you have and try to convince you to come in to apply for a title loan.
Either way, you’re going to need to actually go into the title loan company’s office to complete the application and get your loan, so it’s not necessary to fill out any online forms. Even if you get pre approved, you’re still going to need to fill out the same paperwork and go through the same vehicle inspection. If you enter your phone number on a title loan company’s website, you’re going to be getting a call from them, and their main goal will be to get you in their office.
As far as the items that you need to bring with you when you get your title loan, your government-issued ID is so that the title loan company can verify your age. One of the few federal laws concerning title loans is that all borrowers must be at least 18 years of age. You need to bring your car so the title loan company can inspect its condition, as its current market value determines how much the company will lend you. Finally, you give your car title to the title loan company during the repayment period of your loan. You get that back when you’ve paid off your loan in full. You must have a lien-free title to get a title loan, which means your car must be completely paid off and in your name.
You can’t obtain a title loan if you already have one outstanding. Virginia put this regulation into law early in 2010. The state also doesn’t allow title loan companies to issue loans to any active-duty members of the United States military.
Title 6.2 of the code of Virginia has a cancellation clause that allows you to cancel your title loan if you have second thoughts. You must do so by the close of the next business day after you obtained the title loan. You can either return the original check you got from the title loan company to them, or pay them an equivalent amount. The title loan company that stamps your contract or writes on it to indicate that it has been canceled, and returns your car title to you. As long as you do this in time, the lender is required to honor the cancellation request.
Virginia title loan laws don’t stipulate a set dollar amount limit for title loans, but they do limit the amount compared to the value of the car that’s being used as collateral. Title loan companies are legally able to issue loans for up to 50 percent of the car’s fair market value.
Title loan companies determine the fair market value of your car by checking vehicle value guides, such as Kelley Blue Book. When they inspect your car, they evaluate its condition to get a more precise idea of its value.
While many title loan laws in Virginia are beneficial to borrowers, this isn’t one of them. The reality is that no title loan company would be willing to lend any more than 50 percent of a car’s fair market value anyway. With the amount of interest charged on title loans, title loan companies want to be able to make back the entire loan amount if they end up repossessing and selling your car. That means they will only lend you a fraction of what your car is actually worth, with the highest amount typically being about 30 to 40 percent of your car’s current market value.
The lack of a set dollar limit on title loans does allow you to get a title loan for as much as you need, provided you have a car with enough value. In many other states, there is a dollar limit on title loans, with some states have limits of 2,500 dollars, 5,000 dollars or 25,000 dollars. It’s rare that this lack of a dollar limit will work to a borrower’s advantage, though. Most title loan borrowers only need loans for a few hundred or a few thousand dollars at most. If someone has a car in their name that’s paid off and worth 50,000 dollars or more, it’s unlikely that they’ll need a title loan in the first place.
Title Loan Interest Rates in Virginia
When it comes to interest rates, title loan rules in Virginia provide borrowers with at least some form of protection. The maximum interest rates for title loans in Virginia depend on the amount of the loan. These maximum interest rates and the corresponding loan amounts are as follows:
- For title loans that are 700 dollars or less, the maximum interest rate is 22 percent per month. This is equivalent to an annual percentage yield (APR) of 264 percent.
- For title loans that are between 701 dollars and 1,400 dollars, the maximum interest rate is 18 percent per month. This is equivalent to an APR of 216 percent.
- For title loans that are 1,401 dollars or more, the maximum interest rate is 15 percent per month. This is equivalent to an APR of 180 percent.
If you’re used to any other more traditional type of loan, then you may be getting sticker shock from seeing those interest rates. But those Virginia title loan laws actually result in much lower interest rates than in many other states. There are quite a few states that don’t put any sort of cap on title loan interest rates, or limit them to 25 percent per month.
While Virginia’s title loan interest rates are still very high, they could be far worse. Still, Virginia lawmakers are looking to crack down on the interest rates that title loan companies are able to charge to provide borrowers with more protection. In particular, they plan to close up loopholes that many title loan companies use to get around certain title loan laws, such as term lengths. However, it’s a long, difficult process, because title loan companies tend to have excellent political connections due to the amount they spend on campaign contributions.
Title Loan Terms in Virginia
Title loan laws in Virginia result in significantly different title loan terms than you would find in other state, and actually provides much better borrower protection. In Virginia, you and the title loan company decide on the term length of the loan when you set up your title loan contract. Virginia title loan laws allow for terms between 120 days and 12 months. The state doesn’t allow title loan companies and borrowers to do any sort of extensions or renewals, so the loan is due when it’s due. Title loan rules in Virginia also require that borrowers have equal monthly installment payments, instead of payments that balloon towards the end of the loan.
To understand how Virginia title loan laws for term lengths provide better borrower protection than most other states, it’s important to know how title loan terms work in those other states.
In several states, the standard term length for a title loan is 30 days, and title loan renewals are allowed. What then happens is a borrower will take out a title loan with the usual sky-high interest rate – for this example, let’s use a borrower who took out a loan for 1,000 dollars with a monthly interest rate of 25 percent and a term of 30 days. After those 30 days are up, the borrower must pay 1,250 dollars for the loan principal and the interest. Now, a borrower who just needed to get a 1,000-dollar loan and was desperate enough to go to a title loan company 30 days ago probably isn’t going to suddenly have 1,250 dollars available to payback their loan. This is where the renewal comes in. The title loan company allows the borrower to pay off only that 250 dollars in interest, which will be much easier. Then, a new 30-day term starts, with another 25-percent monthly interest charge tacked on.
This cycle then repeats itself over and over, putting the borrower in a debt cycle where they’re only paying off their interest every month and never even touching the loan principal. The average title loan borrower needs to renew their loan eight times before paying it off. For our example above, the hypothetical borrower would end up paying 2,000 dollars in interest, double the amount that they originally borrowed. What’s even worse is that if the borrower suddenly can’t pay anything and defaults on the loan, the title loan company can repossess and sell their car, even if the borrower has already paid a mountain of interest.
Thanks to Virginia’s title loan laws, borrowers can’t get stuck in this cycle of debt. Since the minimum title loan term length is four months, it gives borrowers more time to pay. Equal monthly payments ensure that the borrower knows how much they’re paying each time and won’t have a much larger payment at the end of their loan.
Now, that does come at a trade off. Since there are no renewal options on title loans in Virginia, that means if you’re unable to make your payment at the end of your loan term, the only option the title loan company has is to repossess your car. You can’t simply pay a lower amount and extend the loan. In the long run, though, the lack of title loan extensions is great for borrowers. Also, if you find that you have enough money to pay your loan in advance, the title loan company isn’t allowed to charge you a prepayment penalty. That means if you have a 12-month title loan and you come into enough money to pay the loan back in the fourth month, you can do so and save yourself eight months of interest.
Virginia does allow title loan companies to charge a late fee once your payment is past due, and the amount is 5 percent of the payment.
Title Loan Repossession Laws in Virginia
As previously mentioned, if you end up defaulting on your title loan by being unable to pay at the end of its term, then the title loan company has the legal authority to repossess your vehicle and sell it to recoup their losses. Virginia car repossession laws do provide solid borrower protection.
Before the title loan company repossesses your car, they must provide you with written notice at least 10 days in advance. If you’re able to catch up on your payment before your time is up, you can prevent the repossession of your car. Title loan repossession laws in Virginia also require the title loan company to provide you with written notice about the impending sale of your car at least 15 days in advance of that sale. This notice must have the earliest time and date when the sale could occur. It also needs to provide you with an itemized breakdown of what you currently owe on the loan. This will include the loan principal, interest charges and any reasonable costs the title company had when repossessing your car. However, the title loan company is not allowed to charge you any storage fees for your car.
If you’re able to pay the amount that you owe before the sale of your car, you can get your car back. In the event that the title loan company sells your car, they will put the money from the sale to what you owe. This is another area where Virginia car repossession laws benefit the borrower. In some states, if there was a deficiency between the amount your car sold for and the amount you owed, you would still be liable for that amount, which would certainly add insult to injury. Not only does the title loan company repossess and sell your car, but they then send you another bill. That can’t happen in Virginia, as the state doesn’t allow title loan companies to come after borrowers for any deficiency balances.
If there ends up being a surplus between the amount the car sold for and the amount you owe, the state requires the lender to provide that surplus to you. This may seem fairly cut and dry, but this isn’t the case in many other states. In other states, you could end up receiving only a portion of the surplus back or even none of it at all. That would mean if you owed 1,000 dollars and the title loan company sold your car for 10,000 dollars, it would keep that extra 9,000 dollars.
How Title Loans in Virginia Compare to Title Loans in Other States
When you compare Virginia’s title loan laws to those in other states, it’s clear that Virginia ranks near the top in terms of protecting its consumers. It has at least some sort of cap on interest rates, even if they are still very high. It sets up title loan terms in a way that makes it easier for borrowers to repay their loans and ensures that borrowers can’t get stuck paying only their interest month after month. While many states provide repossession laws that protect borrowers, Virginia is also above average in that regard.
The state also requires title loan companies to provide documentation clearly stating to borrowers that title loans are not intended to be long-term loans, and going over the possible dangers of title loans, including vehicle repossession. While many borrowers won’t pay much attention to this as they’re more focused on getting their money, at least the state requires that the information is put out there front and center.
So, considering how much title loans favor the lenders, even in one of the more borrower-friendly states like Virginia, why are these types of loans so popular?
The answer is simple – because they serve a market that most other lenders don’t. Title loan companies target the high-risk borrowers who are in desperate need of money right away. They provide loans to borrowers with bad credit who wouldn’t be able to get a loan through a bank or credit union. The only other option available for these borrowers is payday loans, but those somehow have even higher interest rates.
Proponents of title loans argue that because title loan companies are lending money to high-risk borrowers, their high interest rates make sense. This argument doesn’t really hold water, though, when you consider just how high those interest rates are, and the fact that title loan companies are able to recoup their losses through repossession when necessary.
The sad truth is that for title loan companies, the goal isn’t to make money from their borrowers paying off their loans in full. The goal is to collect interest payments every month and have their borrowers never pay off their loans so they can keep making money. Title loans in Virginia are still a poor option as anything other than an absolute last resort. But the state has at least removed the possibility of title loans trapping its borrowers in a never-ending cycle of debt.