Car title loans are not a loan in return for a signature on a piece of paper. Many car title loans are capped at 1/3 to 1/2 of the car’s value, ostensibly to limit the debt load of the borrower. The harsh reality of car title loans is that you are signing over your paid-for car as collateral for a relatively small amount with a very high interest rate. Car title loans are simply another form of predatory lending. However, unlike payday lenders who have few options if someone loses their job, car title lenders have a loan secured by collateral. If you are going through bankruptcy or emerged from bankruptcy and retained possession of your car, talk to a Hawaii bankruptcy before you take out a car title loan to find a better solution.

A car title loan is typically due in 30 days. Hawaii sets a maximum loan term of 31 days, though it may be renewed if the borrower cannot pay the initial loan back. The 15 to 30% interest rate they quote at signing is not the annual rate charged by your credit card. The interest rate is 15-30% per month. The state of Hawaii limits the interest rate to 15%. On a $1,000 car title loan, the interest alone will be $150.

Car title loans also often have additional fees in addition to the high interest rate. A loan for $500 will range from $75 in interest alone to $150 in interest and fees. That is a steep price for a $500 loan and the possible loss of your car.

If you fail to repay the car title loan, the lender has legal ownership of your car title. They can then come and repossess the car to sell to someone else. The high rate of default on car title loans is why many car title lenders demand copies of the driver’s key when issuing the loan. Yet they do not always repossess the car outright. They can also offer a repayment plan that charges the same outrageous interest rate for another month or two. If the borrower takes this route, then three months of payments will equal the amount of their original loan. If the borrower fails to pay the compounding interest on their initial loan, the car title lender can then repossess the car.

This loss is compounded by the fact that car title lenders only offer loans to car owners with equity and limit the loan to up to half of the value of the car. This means that even if they sell the car at below market rates, they still make money on the sale. Not all states require car title lenders to give you the difference between the car’s sale price and the loan amount. In these cases, if they sold your $5,000 car for $3,000 for a $1,500 loan, they keep the full amount. If the car sells for less than is owed, you may be liable for the difference.

If you may be filing bankruptcy, speak with a Hawaii bankruptcy attorney to find out whether or not you can keep the car despite the car title loan against it. At the very least, they may be able to secure the $2,575 of car value exempt under bankruptcy law when the car is sold. If you have a car title loan, inform your Honolulu bankruptcy attorney so that he or she can include this loan in your bankruptcy petition.