The coronavirus pandemic has left no sphere of our lives untouched. On a financial level, many of us have suffered substantial setbacks, loss of income, loss of earnings, and unemployment. The title loan industry is no different.
Some experts have estimated a 69% drop in revenue across the industry. Most title loan lenders across the U.S. have seen steep declines in foot-traffic due to the coronavirus, with some lenders recording a staggering 90% drop in revenue.
As the title loan industry has declined, the pawn shops are thriving as Americans attempt to keep afloat by selling their possessions.
What Exactly Is a Title Loan?
A title loan is referred to as a secured loan because the borrower secures the loan amount by offering an asset as collateral. The most common form of collateral used by borrowers is a vehicle title loan.
The interest rates are generally lower on this type of loan because the lender carries less risk. Title loans, however, do hold risks to the borrower. Should the borrower default on the term payments, the lender has the right to repossess the asset provided as collateral.
How Title Loans Are Changing Amid The Coronavirus Pandemic?
Like any disaster, the coronavirus arrived when people were not financially prepared to weather the storm. Many people without substantial savings were forced to seek short-term financial support elsewhere. With the backlog of applications, traditional banks were struggling to keep up with demand.
The ordinarily fast and efficient online applications for Title loans faced the unique problem of how to conduct vehicle inspections. Many online lenders began offering their customers the option of sending photographs or videos of their cars to assess the vehicle’s value. Instead of face-to-face inspection, lenders asked for:
- A car title to a qualifying vehicle in the borrower’s name
- A government-approved ID such as a driver’s license
- Proof of income (paycheck stubs, invoices, bank account statements)
- Proof of residence
- Several photographs of the vehicle
COVID-19 Related Approval Challenges
People in financial straits during pre-COVID-19 times could easily access title loans as a short-term financial solution. This approval became a unique challenge post-COVID-19, due to the unemployment rate rising to 13%, the highest recorded unemployment levels since WW2.
The hospitality industry suffered the most experiencing a 618% in unemployment spike in May 2020, from the 2019 figures of the same month. With an estimated 40 million Americans without work, the simple procedure of seeking short-term financial relief was no longer a viable choice.
Lenders may turn a blind eye to bad credit, but most lenders do require proof of income. This situation has made it almost impossible for lenders to approve title loans without the necessary evidence that the borrower can repay the title loan.
Funded Loan Amounts Have Dropped Considerably
Hand-in-hand with the drop in approval rates, funded loan amounts have bottomed out to an all-time low. Fred Winchair, the President of Max Cash Title Loans, noted a decrease from a $3,500 average title loan amount to $900 average post-COVID-19. These combined factors have created a vicious circle where low approval and low loan amounts have left lenders with less cash on hand to offer the public.
The Rise of the Micro-Loan
As a means to ameliorate these issues, lenders have adapted by offering smaller loans or micro-loans to keep the title loan industry afloat. Some lenders have begun offering loans as low as $100 and keeping the process strictly all online. Other lenders have sought support from the traditional banking sphere to offer new loan products backed by the banks, instead of the lending company offering the loan.
Reduction in Monthly Repayments
Many lenders have been taking advantage of the post-COVID-19 decrease in interest rates by lowering their rates on title loan repayments.
Title Loan Approvals
To make matters worse, the members of the public who most need financial assistance through title loans are being turned away for more low-risk candidates. The online lending industry has been built by its ability to grant loans to those who carried too much risk to seek loans in the traditional banking route. Now the low-risk candidates are the ones who are reaping the benefits of the all-time low-interest rates of online lenders.
Consumers Prioritize Their Debt Repayments
Online lenders are having a particularly hard time due to the pandemic. Many online lenders rely on a consistent loan volume for growth, and the decrease in loan volume has made them less likely to approve high-risk loans.
With so many Americans unemployed and reeling from the financial impact of the epidemic, they have begun to prioritize which loans they are willing to repay. There was a significant spike pre-COVID-19 in the refinancing of consumer credit card debt, and these are harder for lenders to collect on than other types of credit.
With lenders having less capital on hand, consumers will find that they will have a far harder time being approved for title loan applications.
What To Do If You Cannot Make Your Title Loan Repayments
If you have been affected by the pandemic and can no longer make your title loan repayments, you should consider:
Speak to Your Lender
If you approach your lender directly and explain your changed financial status, they are likely to be open to negotiating the terms which you signed. They may amend the contract to a longer repayment term to make the payments more manageable.
Extending the terms of your title loan repayments may be an option. Extending the duration of your title loan repayment will end up costing you more in the long run, but is preferable to defaulting on your payments. There is always a risk of fees doubling up when you miss even one payment.
Find a Co-Signer
Seek someone that you trust that will provide support for you should you be unable to make your payments.
Look for Ways To Earn Other Income
Look to your skills and see if you can’t make some money to make up your title loan repayments. Freelance work and online jobs are an option and remember that small amounts add up.
Cut Your Budget
A temporary lifestyle downgrade may feel like the end of the world, but it will raise your living standard in the long run. Cancel some memberships that are not crucial such as Netflix and eat at home rather than order takeaways.
Sell Items Not Being Used
Lockdown is a good time for some spring cleaning. Look for high-value items that you no longer use and consider selling them online. These items could tide you through the next payments until you find your feet again.
If you have suffered financial setbacks due to this pandemic, don’t feel alone. Over 40 million Americans have lost their livelihood and are struggling just as you may be. Don’t wait to default on your title loan repayments, be proactive, and, if necessary, seek expert assistance.