11 Strategies for How to Start or Improve a Car Title Loan Business
Car title loans are a fact! Consumers need access to small dollar loans. Fast! Emergencies of all kinds pop up. It’s been said that 50% of U.S. residents cannot get their hands on $1000 in an emergency. Here’s a basic breakdown regarding “How to Start a Title Loan Business.”
Lacking friends and family who haven’t already been “tapped out,” a common method for solving these temporary liquidity challenges is to use the title or “pink slip” to their car to borrow some bucks.
These are high interest loans! They do not come cheap. Depending on the state, a car title loan operator will charge heavy fees for the convenience of servicing a car title loan customer in need of quick cash.
How much you ask? Let’s look at California. The rates for car title loans under the California Financial Lenders license (CFL) is not regulated for title loans above $2500.
California title lenders are currently charging 8% to 20%+ per month on the outstanding loan principal.
What’s this mean? A $3000 loan using a car title as collateral, at an 8% simple interest rate, would dictate the borrower will pay the title lender operator $240/month each and every month until the $3000 balance is paid back in full. So, if the car title lender borrower needs 10 months to payback the $3,000, that’s $2400 in fees paid to the owner of the title loan business plus the $3000 original loan principal.
If the borrower fails to make their payments, the title loan business owner will make a call, have her repo company pickup the car, deliver it to the nearest auction and be rid of it. After paying the auction any reconditioning and auction fees, the title loan operator will deduct the amount owed by the car title loan borrower and mail any balance to the title loan borrower.
Entrepreneurs reading this typically experience delirium when contemplating the profit potential.
So, “How do you start a Car Title Loan Business?”
- Look around you! Is there a car title loan business in your city? In your state? If yes, keep going. If not, there must be a problem. Perhaps car title loan businesses are illegal. Believe me! There is so much money to be made lending cash against car titles that if it isn’t already being done in your state, there must be a law against it. Find out!
- Walk into a competitor’s store. Look over all the walls. There is bound to be references to the legal authority granting this competitor the ability to offer car title loans. Usually, you’ll see an 800# to your State’s office of business licenses or perhaps your State Dept. for Business Oversight. Every state has a different name. Just get the number and make the call. Call and call until you get the right person. (Or refer to the Chapter in our “How to Start a Car Title Loan Business” focused on licensing in each state.)
- You may need a “Bond” in addition to a “License.” Use Google to find a “Bond” or pick an insurance company out of our “Manual.”
- Get a car title loan from your “biggest – baddest” competitor. Use their forms and contracts to start. Have them customized by your own lawyer. (Or use the ones in our “Manual.”) GO THROUGH THE LENDING PROCESS WITH YOUR COMPETITOR! See what it feels like. Taste it. Ask questions. This is a CRITICAL moment; an opportunity to decide if you really want to proceed building a car title loan business.
- Learn what the minimum and maximum rates/fees are that can be charged to customers for car title loans in your state.
- Pick a name for your car title business. Use keywords in the title. Allow your company name to reflect what your business does. “Fast Title Loans” for example. Add the name of your city or state. Go to your county clerk and register this name. You’ll need to run this filing in your local newspaper to open a bank account. Fees are minimal.
- Make certain you create a business entity; an LLC, a C-Corporation, an S-Corporation, a DBA… check with your tax person and your accountant your lawyer… (If you have our “Manual,” just follow our instructions and reach out to the resources given.) You must assemble a small Team of experts in each of these fields!
- Get a location. You’ll need high traffic, great signage, convenient customer parking, and a good lease with an opt-out clause. (See our “Manual”. We have a lengthy Chapter devoted to this topic.) As we talk about in our “Manual,” your IDEAL location is inside a Walmart 🙂
- Get some great loan management software! This will cost you $100 – $200/month. It’s a MUST investment. Make certain it’s “cloud” based. Make it easy to run your business from an office, a store, or out in the field. If you offer the advantage of being able to meet your customers at a Starbucks, a parking lot, their employer’s place of business… you can beat the pants off your competitor. (See our “Manual” for loan management software providers we use and recommend.)
- Market the hell out of your new car title loan business! Your sign, Google PPC, Craigs list, twitter, Facebook, Pinterest, LinkedIn, direct mail, radio, TV, a mobile friendly website… Again, all this is thoroughly covered in our “How to Start a Car Title Loan Business.”
- Your next job? Collections! This is where it gets tricky. It’s easy to give away your money to anyone who can fog a mirror. But how do you handle the late-payers and those customers who had no plan to pay you back in the first place? Avoiding this “collection” problem begins the very first time you lay eyes on this borrower. We call this “underwriting.” This is a huge subject. Over the past 20 years, we’ve developed strategies, tactics, tools, data bases and resources to deal with this reality. BIG TOPIC! See our “Manual.”
Sorry! This is a HUGE topic. We’ll continue “How to Start or Improve a Car Title Loan Business” in our next installment. Or, you may invest in our Manual by clicking here: “Trihouse Car Title Loan Manual.”