California is perhaps one of the most “forward-thinking” states when it comes to introducing legislation for personal loans. Therefore, it is no surprise that at the start of 2020, the state introduced several new laws that are designed to ensure that loans, including title loans, were less likely to become a “debt trap” for those that need to borrow. Here, we will take a look at some of these pieces of legislation.
Loan Amount Restrictions
It is important to note that the information on this page will only apply to loans between $2,500 and $10,000. This means all title loans issued in California should be covered.
It is worth noting that the legal minimum loan for a title loan in the state is $2,500. You cannot borrow less than that against your vehicle. As a result, if your vehicle is worth less than this, you will struggle to obtain a title loan.
Interest Rate Caps
The maximum interest rate on personal loans in California will be 36% per year. This is, partly, why it has become increasingly difficult to borrow money for a car title loan in the state, especially if you suffer from a poor credit score.
Most lenders now live by the rule that 36% is not enough to take a massive risk on somebody. Although, this was likely the intention of the legislature. They wanted to ensure that lenders would not be handing out money left and right. This would help to prevent the most “at-risk” groups from being given loans that they simply cannot pay back.
Reduction in Fees
On top of the maximum 36% interest rate on title loans, there have also been limits placed on the fees that a lender can charge. In addition to this, the federal funds rate will be added to the 36% interest rate.
For a title loan in California, the maximum fee is $75. If the loan needs to be refinanced, additional fees cannot be charged on top of this unless the loan has been held for at least a year. The lender can then, once again, charge a maximum fee of $75.
Minimum and Maximum Terms
All loans must now have a minimum term of 12-months. This means that you will no longer see title loans that require repayment within a month or two.
In addition to this, there will be a maximum term in place for loans. For most title loans, this should be capping out at 60-months and 15-days. However, do bear in mind that there would be nothing stopping you from refinancing your loan at this point. That being said, this maximum term should be more than enough to cover just about every single title loan out there.
According to Josef Weinstein of 3 Steps Title Loans, most lenders will set their terms at 12-months as a result, although some lenders will go up to the full maximum. Still, this is going to be rare for car title loans because most of them are going to be of very low value. Most will keep it at 12-months because it will enable them to continue to obtain that $75 fee if the loan needs to be refinanced.
This is a highly beneficial change to California title loan laws. This is because, in the past, most title loan lenders would not report any borrowing or repayments to credit bureaus. This means that even if you paid your loan back on time, you would not see a change to your credit score. This could leave you in a position where you are taking out loans, but never really seeing a way in which your financial health could be improved.
In the state of California, it is now a legal requirement to report any payments to a credit bureau. However, it is important to note that lenders have up until the start of 2021 to put this process into place. Although, due to the minimum term length requirements, even if you took out a loan at the start of 2020, you would still see a benefit to this credit reporting.