Profits & ROI for a Car Title Loan Business
An entrepreneur’s perspective.
Let’s begin with a real transaction. We have equity in California stores amongst other states. We do payday loans, car title lending, scrap gold buying and tax services. In one of our locations, a new customer walked-in requesting a title loan on his truck. We determined the “low-book” value of his collateral was $15,000. We loaned $3000 at 9% per month ($270/month) for 36 months with zero pre-payment penalty. If this customer chooses to, he’ll pay us a total of $9720 in fees AND will still owe us $3000 in principal.
[NOTE: If you’ve already invested in our “How to Start a Car Title Loan Company Manual,” simply whip it out and read pages 58 – 59. It discusses car title loan business key business metrics in detail.]
My point? You really don’t need to read any further to grasp the profit potential of a car title loan company.
You can read any daily newspaper and stories like the following will appear:
A single mom in Iowa received a $350 auto title loan for 14 days, paid only the interest portion 8 times with no portion applied to the principal, in total paying $977.
An auto mechanic in Tyler, Texas paid $1211 in interest and fees over 11 months; only having reduced the principal balance by $15.
Burdened by medical expenses, Amy Poormom applied for and received a $500 auto title loan secured by her 1995 Ford Taurus. This was a loan for 30 days and specified a loan fee of $30 per $100 borrowed. Amy renewed (paid only the interest/fee of $150) for 12 months. At this point Amy had paid a total of $1800 in interest/fees while still owing a balance of $500.
Of course, the “mean” auto title loan company repossessed Amy’s car (which she needed for work) and sold it for $750 at an auction. Now Amy can no longer get to work. Amy lost her job. Worry and stress put her in the hospital. Now, the hospital is suing her for non-payment; she has no job so she has no insurance.
What is not mentioned or even considered is that Amy Poormom needed the initial car title loan because no one in her family was willing to provide her with the $500 she needed for tires and brakes on her car. The auto title loan company actually enabled her to gain another 12 months to get her life back on track. It could be said that had the auto title loan company not come to her aid and provided some hope for Amy, the ultimate outcome would have come earlier. Perhaps the family should have performed an intervention to help her with her crack habit.
Ok, if you’re reading this you may think we are getting carried away. But these are real-life events.
ENOUGH OF THIS!
Back to profits.
States and provinces having specific auto title loan statutes and fee structures typically prescribe 3% – 30% per month on the principal loaned; 25% being the average in the USA. Thus, a $1500 loan for a 30 day title loan could yield total interest payments of $45 to $375 with no portion applied to the principal. Thus, if after 6 months, the title loan consumer continues to “roll-over” this title loan they will have paid as much as $2250 in fees/interest. The balance due on their car title loan would remain $1500.
$500.00 borrowed for a 30 day term will typically cost $125 including miscellaneous fees. The actual range is roughly $75 to $190 depending on the state/province and the exact circumstances of the title loan borrower.
After you enter the car title loan business, you’ll be pleasantly surprised by the number of customers who will have a late model Lexus or Mercedes. It’s amazing how many people receive settlements and use the proceeds to purchase a new luxury car. Later they experience cash-flow problems and need your help; and they have the title to their car!
Even in a state like Florida where the statutes prescribe an interest rate of 30% per annum, it’s a simple matter to put $250,000 “on the street” in auto title loans. This would yield a gross of $75,000/year versus a CD earning $2,500 (1% annually).
These car title loan clients may not be totally bereft, but they are in trouble and are willing to borrow money at interest rates dwarfing those of a conventional bank loan; ranging from 17 percent a month (204 percent APR) on $500 or less to 10%, 20%, 30% percent a month on more than $5,000.
“Your job is your credit” rings very true in our industry; the business of lending money on car titles. We have a Texas operator having 300 people bringing him $40 per week. That’s $12,000 per week! If the car breaks down, he has it fixed and adds it to their car loan.
A great number of auto title loan lenders add on several fees to improve their ROI’s and provide incentives to their title loan clients to pay on time. These include but are not limited to:
- A $15 fee if a collection letter must be mailed to the title loan consumer
- A $25 returned check fee
- Late fees (5% is typical)
- Should a collector be sent to their door, a $50 to $100 fee is imposed
Deficiency fees are collected should a sale of the vehicle yield less than the amount owed on their title loan.
Want to know more? Learn how to start a car title loan business. Invest in our “How to Start a Car Title Loan Business Manual” now. In 30 seconds you’ll receive a link to download it in Adobe Acrobat [PDF] and begin your journey. Click Here!