What You Need to Know
The state of Delaware requires title loan lenders to be licensed. This means they are being regulated by the state to protect you, the consumer, against things like fraud and deceptive loan practices. Specifically, lenders cannot advertise a title loan at an interest rate that is lower for an initial period but then increases in the event of a rollover or payment extension period. For example, a lender cannot advertise a loan at a 15% interest rate if the interest rate of the loan increases to 20%, or higher, after an extension in the loan repayment date.
Before entering into a loan agreement your lender should disclose to you, in writing, the following:
- A title loan is designed for short-term cash not to solve long-term financial problems.
- You do not have to complete the loan agreement just because you’ve received these disclosures.
- If you sign a loan agreement, the lender will have a security interest in your vehicle. In the event, you fail to meet the obligations of this agreement the lender may take possession of your vehicle and sell it.
- If the lender takes possession of your vehicle, you may lose equity in it.
- You have the right to rescind the title loan agreement up to the end of the business day following the day loan funds are disbursed to you.
- You have the right to receive information about credit counseling services from the Office of the State Bank Commissioner.
- You may file a complaint with the Office of the State Bank Commissioner if you believe your lender has violated any law regarding your title loan.
Once you have decided on a title loan lender, you and the lender will enter into an agreement. It should include the details of the property whose title is being offered as collateral and the names and details of all of the owners of the property.
Payments & Extensions
At this time, you and the lender will also agree on a date for repayment, which can be no more than 180 days after the date of the loan. An extension of an outstanding title loan debt is known in Delaware law as a rollover. Extensions may be agreed to on a case-by-case basis. Whatever extension date is given for the rollover must not exceed 180 days from the date you received the loan money. By entering into this agreement, you are claiming in a legal document that the motor vehicle is not stolen, that you have the right to offer it as collateral, and that there are no liens against it.
By or before the agreed repayment date you should pay the lender the full amount as agreed, which means the amount borrowed plus the agreed upon interest. The law does not stipulate how much interest title loan lenders are allowed to charge, so there is no maximum, but this will be agreed on between the parties. The lender may take possession of the title of your vehicle until the loan is repaid, but you continue to have full use of the vehicle.
How You’re Protected from Repossession
If the loan is not repaid by the original repayment date, or any rollover of the loan, the lender must not take possession of your vehicle or file suit on the loan until he/she has offered you a workout agreement. Every workout agreement must allow for at least a 10% net reduction of the outstanding balance on the loan every month. You will have at least ten business days to accept a workout agreement before your lender can repossess your vehicle. That means you have at least ten days to either accept an agreement to repay the loan or to gather enough funds to pay the loan in full and avoid repossession altogether.
If you fail to make the necessary payment at the repayment date, or at the time of any extension given, then you have defaulted on your loan. If you have not entered into a workout agreement, or have entered into a workout agreement and then failed to meet those obligations, your lender may take possession of your vehicle. You will owe interest ordinarily, as outlined in your loan agreement, and from the date of default until the time your vehicle is repossessed. However, once your vehicle has been repossessed, even before it is sold, your lender should not be charging you interest.
You Are Not Responsible for Additional Charges
Once your vehicle is repossessed, to recover the unpaid amount of the loan, the lender may then sell the vehicle. If the amount recovered from the sale is less than the debt owed, you will not be held liable. For example, if you owe $5,000 at the time of default, and your vehicle is repossessed and sold for $3,200, you will not be responsible for covering the $1,800 difference.
However, your lender will be required to pay you any excess resulting from the sale of your vehicle. So, if the roles were reversed and you owed $3,200 and the vehicle sold for $5,000 you would be entitled to the $1,800 difference. Once a sale has been completed, your lender has 30 days to give you a written explanation of the disposition of the proceeds of that sale. Whether the sale produces more or less money than you owe, you should be informed, in writing, that the sale has satisfied any outstanding debt under the title loan.
References
“Delaware Code Online.” State of Delware, 2017,
http://delcode.delaware.gov/title5/c022/sc05/index.shtml
In his role as our dedicated “numbers guru,” Tracy takes charge of Titlelo’s financial planning, analysis, and forecasting. With an impressive 20-year accounting background working alongside CPA and high-tech firms, we rely on him to steer our fiscal ship towards continued success. Tracy’s invaluable contributions to our team are characterized by his hands-on approach and unwavering commitment to precision. With his expertise, we are empowered to implement inventive, pragmatic, and results-focused financial strategies, propelling Titlelo’s clients to new heights.