Title Loan Requirements in Houston

Houstonians encountering an unexpected expense may be happy to learn that title loans are legal in Texas. A ready source of quick short-term cash, car title loans can be just what’s needed — if borrowers are certain they can repay the loan in the amount of time specified. Pay in full as agreed, and you’ll have no problems. Missed payments, on the other hand, can trigger a cascading sequence of negative events.

Here’s what you need to know about title loan requirements in Houston, Texas.

What is a Title Loan?

Any loan secured by the value of a vehicle is considered a title loan. Effectively, borrowers offer title to a car, RV, truck, motorcycle, or boat, as collateral for a short-term loan. The borrower must own the vehicle outright to qualify for the loan.

Generally, these loans are funded quickly and seldom require credit checks. Because the vehicle serves as collateral, and its value is typically many times greater than the loan amount, lenders will grant these loans to anyone who holds title to a vehicle with little concern over the nature of their credit history.

Loan Amounts and Fees

Title lenders are required to be licensed and agree to be governed as dictated by the Texas Finance Code under Title 5 Protection of Consumers of Financial Services. One of the most important requirements lenders must meet is specifically informing borrowers of the amount they will be required to pay in fees and interest before allowing them to sign a loan agreement.

Title loans in Houston are limited to 3% of the borrower’s annual income or 70% of the value of the vehicle — whichever is less. Loan terms are limited to a maximum of 180 days — including renewals. This means that a 30-day loan can only be renewed (or rolled over) five times. At that point the loan is due in full.

While interest rates are capped at 10%, that rule applies specifically to lenders. To get around this regulation, many title loan companies register as Credit Access Bureaus (CABs), brokering loans between borrowers and lenders, rather than lending directly to borrowers. CABs are permitted to charge fees for arranging loans, which enable them to exceed the 10% interest cap.

In fact, CABs can impose unlimited fees — if they disclose the total amount associated with the loan. They are also required to provide comparison interest rates for similar types of loans, to ensure that consumers are duly informed.

Borrower’s Obligations

To qualify for a title loan in Houston, a potential borrower must be at least 18 years old. They must also be capable of demonstrating a steady stream of income and be Texas residents. Borrowers must also present a valid government ID, such as a driver’s license, state ID card, passport or the like.

One’s full legal name, as well as primary residential address, phone number and birth date, must also be provided. Vehicle details including color, make, model, odometer reading, and model year are required as well.

By signing, borrowers verify their awareness of the loan amount, repayment date and the total amount due listed on the loan agreement. They also confirm their understanding of the monthly fees and interest rates for which they will be held responsible.

Lender Recourse

A pledged vehicle can be seized in as few as seven days after a payment is missed. Lenders are not required to warn borrowers before taking possession of the vehicle. Nor are lenders required to seek permission from the courts to do so.

If the vehicle is seized, borrowers will be held responsible for the cost of the tow, as well as for compensating the individual who tracked the car down and took possession of it. Borrowers will also be held liable for any costs associated with rekeying the vehicle, as well as costs associated with selling the vehicle at auction.  

However, lenders must give borrowers a chance to pay before they order the vehicle to be sold. They must also offer repayment plans before selling the vehicle. On the other hand, lenders are not required to share the proceeds of the sale with the borrower, even after the principal loan amount, all fees, interest payments and other associated balances are recovered.

In other words, they can sell the vehicle and keep whatever they get.

In Summary

As you can see, things can go downhill rather quickly if a payment is missed. Therefore, accepting a title loan in Houston (or anywhere else for that matter) should only be done in situations in which you are certain you can repay the loan as originally agreed.