I was working on a story recently about one of the worst types of loans — auto title loans — when a credit counselor I was interviewing told me something I had never considered as a reason for getting such a horrible loan that often leads to spiraling debt.
Some of her clients had good credit, she said, and could probably get a loan at a bank, but they chose not to. Why? They didn’t want their spouse to know about their debt.
“A lot of my customers were hiding things,” she said.
She didn’t say what the debt typically was — though it’s often everyday expenses and not always for emergencies, as I thought it would be, according to a report I was writing about. The title loan was often needed to pay off a credit card bill, and was for debt the borrower didn’t want their spouse, significant other or employer to know about, the credit counselor told me.
Car title loan rates are crazy high
If you don’t know much about title loans, consider yourself lucky. If you don’t have a need for one then you probably don’t know much about them. I didn’t, until I saw a report by the Consumer Federation of America on their return to Arizona after payday loans were outlawed there.
The annual percentage rates on the secured loans range from 120 percent to 204 percent in Arizona, one of 21 states that allows title loans.
The rates can turn a 30-day, $500 loan into a $585 loan after one month that is rolled over an average of eight times by borrowers for a total payment of $1,265. Bigger loans are also available for up to 24 months.
If you don’t pay, your car can be repossessed by the lender — who you gave the car title to and a copy of your car keys when you took out the loan.
A debt discussion
Hiding debt from your spouse is dumb enough. But imagine the family discussion that will happen when the family car is repossessed because you got a loan at 200 percent annual interest and didn’t pay it off.
If you suspect that your spouse is getting a car title loan, there are some tipoffs that should be easy to spot:
- Where is the title to the car? If you can’t find it, a lender may have it.
- Your spouse is the first to get the mail and open the credit card bill so you don’t notice some crazy debt they racked up.
- Your tax refund is already spent.
- They’ve already had a payday loan.
Payday loans are just as bad as title loans, with the same high interest rates and monthly rollovers of debt by borrowers who can’t afford the high interest payments. The difference is that payday loans don’t require collateral — though access to your next paycheck could seem just as unhealthy for a relationship as giving up your car’s title to a lender.
The credit counselor told me something else that kind of shocked me, though not too much: tax refunds in April are often used by payday or title loan borrowers to pay off such loans. Using a tax refund to pay a few bills is a good way to cut back on debt.
But hiding that tax refund from your spouse so you can pay off a title loan and cover some debt you don’t want to explain? Good luck with that.