Title loans are loans secured on the value of a vehicle. They are handy for consumers looking for quick financing because they have fast approvals and minimal documentation requirements. Consumers who’ve fallen into debt (such as credit card debt) can catch up or meet other urgent needs such as groceries or medical expenses.
Texas title loan laws apply to a wide range of areas in this industry. These regulations are in place to inform consumers of title loan terms and rates while offering them adequate consumer protection if they decide to take out a loan.
Are Title Loans Legal in Texas?
Texas title loan regulations allow you to get a title loan for a mutually agreed-upon amount between you and your lender. Depending on your lender’s registration within the state, they are limited to charging a 10% interest rate at the most.
The Texas Finance Code under Title 5 Protection of Consumers of Financial Services governs all car title loans in the state. Texas law requires lenders to disclose how much the borrower is supposed to pay in fees and interest before signing off on the loan.
Lenders can also charge unlimited fees, but by law, they must disclose the total fees and interest rates associated with a particular loan before disbursing it. They must also give all borrowers the comparison interest rates for similar forms of debt to enable the consumer to make educated decisions.
Texas title loan laws give guidance on the following:
- Avenues open to the lender in case a borrower defaults
- Interest rate limits a lender may charge a borrower
- Permitted renewals and rollovers
- Loan term limits, including minimum and maximum loan amounts, penalty fees, and repayment periods
There is no limit to how much a borrower may borrow. However, loan terms in Texas are limited to 180 days. This means that borrowers cannot renew an initial 30-day title loan more than five times before the initial loan they took is due in full.
Title Loan Interest Rate Caps in Texas
Texas title loans generally have a lower cost of borrowing compared to many states in the nation.
Title loan interest rates have a cap of 180 days. On average, borrowers pay $21 for every $100 they borrow with a median loan term of 29 days. As mentioned above, Texas law currently has no cap on title loan amounts, but it does have an interest rate cap of 10%.
Title loan lenders do have an exception to the 10% interest rate cap, however. According to Texas law, lenders can register as a Credit Access Business (CAB) to broker loans between a third-party lender and a borrower.
Because CAB fees do not fall under Texas title loan laws, CABs can charge fees for arranging the loans, while third-party lenders charge an interest rate at or below 10%.
Contract for Texas Vehicle Loans
To qualify for a title loan in Texas, borrowers must have or meet the following conditions:
- Have a car title without liens
- Have a steady income with recurring income payments—e.g., salary, child support, workers’ compensation, or disability
- Be a resident in the state of Texas
- Be at least 18 years old.
- Have a valid government photo ID, e.g., a driving license.
Borrowers must also provide:
- Their full legal name and personal details, including phone number, address, and date of birth.
- Details of the vehicle, including make, model, mileage, and year of manufacture.
- Type of ID and its number
- Loan amount
- The repayment date and loan amount due
- The monthly fees and rates
In addition, certain Texas cities have title loan laws applicable before consumers can take out a title loan. For instance:
- Austin, Dallas, San Antonio, and Houston limit title loans to 3% of borrowers’ annual income or 70% of the vehicle’s market value, whichever is lower.
- Killeen, Texas, requires lenders to ensure that borrowers take a loan of less than 20% of their monthly income.
Car Repossession Laws in Texas
A lender can repossess a vehicle even if a borrower is as late as one week on a title loan. The law does not stipulate that they give the borrower repossession warnings, and they do not need to apply to the court for permission to execute the repossession.
However, title loan lenders typically do not repossess vehicles as a first resort. This is because it is an expensive and inconvenient process. However, if it does occur, the charges are hefty for the borrower.
Some of the costs borrowers will have to pay in case of repossession include:
- The tow cost
- The repo man
- The vehicle rekeying cost
- The cost of selling the car at auction
Most title loan lenders will work with borrowers to renew the loan and avoid repossession. However, if repossession does go ahead, lenders are not obligated under Texas title loan laws to return any surplus from the vehicle’s sale. They may also chase the borrower for any deficit.
Therefore, to recap the Texas title loan laws as regards vehicle repossession:
- The state of Texas protects its residents by setting strict repossession laws.
- The state of Texas determines whether lenders can sell the vehicle and what percentage of the sale a lender can take.
- Lenders must, by law, maintain thorough records on all title loan transactions.
- Lenders are obligated to offer borrowers additional repayment periods or a payment plan to pay off the loan and recover their title.
- Texas title loan laws stipulate that the state of Texas can find lenders as much as $1000 for violating these laws.
What You Need to Know About Title Loans in Texas
Title loans provide a convenient way for borrowers with a car title to access quick funds. However, there are strict rules and regulations that govern these loans to ensure consumer protection.
To limit fraudulent lenders, the state of Texas must license all lenders. In addition, the law considers any lenders engaging in false advertising or selling and charging any insurance as predatory and may fine them for these practices. No members of the military can take out title loans, and no title loan storefronts can be within 50 miles of a military base in Texas.
Texas title loan laws are there to protect both the consumer and the lender. If the only option you have is taking out a title loan, do your research before taking out the loan. For a list of responsible lenders click here.
Study the laws that govern title loans in Texas carefully, and make sure you work with a reputable lender with reasonable fees—and most importantly, one who follows the law.