Loan laws can vary from state to state, and that’s especially true with title loans, which are often much different depending on the state where you obtain one.
There aren’t too many title loan regulations in Texas, as the state gives lenders and consumers flexibility to set up contracts under the terms they want, but there are still a few important laws you should know about.
The Basics of How Title Loans Work in Texas
Before we get into title loan regulations in Texas, let’s briefly break down how title loans work. A title loan is simply a loan where the borrower’s car serves as collateral, securing the loan.
This means that loan approval and the amount the lender approves the borrower for all depend on that car’s value. During the term of the loan, the lender will keep the car title, and then give it back once the loan is paid off.
All title loan borrowers must be at least 18 years old. That’s true not only for Texas title loans, but all title loans nationwide, because it’s a federal law.
Title Loan Regulations in Texas
Here are the regulations in Texas for every aspect of title loans:
Title Loan Amounts in Texas
This is one area where the state doesn’t set any restrictions. Texas puts no cap on title loan amounts, and that means the lender could issue a loan for as large an amount as they want. A lender will typically go through the following process to determine the maximum amount they’ll lend you:
1. Use a vehicle value guide, such as Kelley Blue Book, and look up your car by punching in its year, make, model and approximate mileage. This will bring up values for the car, with value ranges corresponding to the condition the car is in.
2. Perform a short vehicle inspection on your car. This will include the interior and exterior of the car, and the lender uses this inspection to figure out what condition best describes your car.
3. Check the value listed for your car in its current condition in the vehicle value guide to come up with its current market value.
4. Set the maximum loan amount at a percentage of your car’s current market value. This is typically between about 30 and 50 percent, and lenders do this to reduce their risk if you default on the title loan.
Provided your car is valuable enough, you could get as much money as you want with a title loan.
Title Loan Interest Rates in Texas
Many states don’t have any title loan interest rate limits, but Texas does, and it sets its limit at 10 percent. However, there is an exception to this in the form of fees. Many Texas title loan companies also function as credit access businesses, which means they’re facilitating a loan between the borrower and a third party. When they do this, they can charge additional fees.
The best title loan plans in Texas are 0-percent title loans. These have an annual percentage rate (APR) of 0 percent for an introductory time period, and if you pay off your title loan within that time, you don’t pay any interest.
Title Loan Terms in Texas
Texas sets the limit on title loan contracts at 180 days. Since title loans are short-term loans, this limit is much longer than a typical term, which is almost always 30 days.
The limit does come into play if you extend your title loan multiple times. Let’s say that you can’t pay off your title loan on its due date. In this situation, you can pay the interest and fees on it to get an extension and start a new term with the unpaid loan principal. The new term has additional interest and fees.
Since Texas has that 180-day limit on title loan contracts, you would be able to extend a title loan with a 30-day term five times. After that, you must pay off the title loan in full.
Defaulting on a Title Loan
It’s always advisable to extend your title loan instead of defaulting on it, because if you default, it gives the lender legal authority to repossess your car. In Texas, there is also no grace period that the lender must wait after you default before possessing your car. As soon as you’ve defaulted, they can come repossess it. Some lenders will wait a few days or a week, but at that point, there are no guarantees.
When a lender repossesses your car, you can usually still catch up on your payments to get it back. However, if you don’t, they’ll sell your car.
If you’re trying to decide if a Texas title loan is the right decision for you, it’s a good idea to get familiar with the terms. A title loan can be an excellent short-term loan option. But just like with any other loan, you need to be confident you can pay back what you borrow to avoid defaulting.