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Registration Loans vs. Title Loans

Posted by attorney Clint Dunaway

Prior to June 30, 2010, Arizonians could write a post-dated check to Payday lenders for short-term loans. These Payday lenders charged interest rates of more than 400 percent on an annual basis! However, post June 30, 2010 consumer loans with annual interest rates higher than 36 percent became illegal without exception. Arizona law now caps the annual interest rates of Payday loans at 36 percent. Because Payday loans in Arizona essentially became extinct these creditors developed “Registration loans" as a way of avoiding the new cap on interest rates.

What is a Registration Loan?

A Registration loan is almost identical to a Payday loan; the only different is that you need a vehicle registered in your name in order to qualify. These loans are exempt from the 36 percent A.P.R. and therefore they have rates as high as 204%. The vehicle does not need to be paid off in order to receive a Registration loan.

Default on a Registration Loan:

Registration loans do not put a lien on your car title and therefore the creditor cannot repossess your vehicle upon default. However, I have read some Registration loan contracts which state that they will put a steel “boot" on your car if you default on payments.

Now if you file bankruptcy on a Registration loan the creditor will never be able to contact you again in an attempt to collect on the debt. The Automatic Stay of Bankruptcy will protect you from their collections efforts. However, this is not the case with Title loans.

What is a Title Loan?

Auto-title loans are closer to traditional loans, using the vehicle as collateral, while Registration loans are more similar to a Payday loan. Title loans are very expensive because they are exempt from the 36 percent cap on the annual percentage rate. Therefore, you will pay up to 204% A.P.R. for a Title loan.

In order to obtain a Title loan you must own a vehicle that is free of any liens. Your vehicle must be free of liens so the lender can put a lien on your vehicle.

Default on a Title Loan:

If you fall behind on a Title loan, the lender can and will repossess the vehicle. Because technically until the Title loan is paid-off the vehicle is there’s and they can take it back in the event there is a breach of contract. So whether it’s before or after bankruptcy if you do not pay on a Title loan the lender is free to come and repossess the vehicle.

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