Title Loan Franchises Profitable!
Are car title loan businesses profitable? Is buying a title loan company franchise necessary?
Here’s your next installment of our Car Title Loan Business mini-course.
Car Title Loan non-franchise company profits: (See our actual financial metrics below.)
$50,000 in car title loans “on the street.”
Each “Title Loan” principal avg. = $1185.
Total car title loans outstanding = 42
Fees = $25/$100 loan principal. $12,500/month gross fee income.
So… the question you have to ask is “Can I achieve $100,000 “on the street” eventually? In my town? At this rate?
That’s $25,000 per month in gross income plus late fees, revenue generated from other services you offer such as tax returns, bill pay, money transfer, money orders…
Following our guidelines on our AutomobilePawn.com website at http://www.AutomobilePawn.com you can hit these numbers with 1.5 employees and run this location from anywhere via the Internet.
Overview of the Car Title Loan Industry
Known as title loans, pink slip loans, title pawn loans, car-title-loans, auto-title, automobile title loans, title loan business, motor vehicle equity lines of credit… Basically the borrower offers the title of their vehicle as collateral for a loan. The traditional car title loan is similar to a payday loan in that they are typically single-payment loans with one month terms. At the end of each term, the car title loan is renewed by paying the fees due. In many cases, the borrower will “pay-down” a portion of the principal due as well.
A title loan is a way for a consumer or small business owner to borrow against the equity in their motor vehicle.
Most title loan customers do not own real estate so their vehicle is their most valuable asset.
Typically these are small loans. The USA average is less than $1000.
Like payday loans, car title loans are marketed as small, quick and easy emergency loans. The major differences are the car title loan is collateralized (Collateral: assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default) by a vehicle (car, boat, RV, motorcycle…) and, in many states, the maximum loan amount is set higher by statute.
Loan terms vary depending on state or provincial statute as well. 30 days is typical but terms do vary by geographic area. Refer to the State Laws Sections at the end of this Manual for specific data.
The finance charge is simple interest.
Rarely are there fees, points, penalties, hidden charges, etc. Rates are commonly in the range of 25% interest on the principal for a 30 day period.
Credit reports are not used to determine whether an auto title loan customer will qualify. Generally the critical factors are:
- Value of the collateral. It must be 100% unencumbered. Or, you can use a portion of the loan principal to pay off any liens in order to “clear” the title. This is a hassle but many car title lenders will “jump through the hoops” when the collateral is highly valued. Examples? Trucks, RV’s, boats, high-dollar sports cars…
- Ability of the auto title loan customer to make the payments. Contrary to what the consumer protectionists’ claim, we do want our customer to successfully pay us back!
There are two auto title loan models we use:
- Auto title loan: we take possession of the unencumbered title or “pink slip” to the vehicle. The consumer continues to maintain possession and drive the car.
- Auto pawn: we take possession of the vehicle and store it.
This Manual is appropriate for both approaches. The major differences are fees imposed on the borrower and the specific license issued by your state or province to carry out each activity.
Car Title Loan Metrics (Avg. for Trihouse Consulting & Clients)
Median Loan Principal: $1185
Median Car Value (Low Kelly Blue Book): $3285
Median Loan to Value Ratio: 32%
Median APR: 300%
Avg. Number Repos/100: 4.5
Avg. Number Rollovers: 8
Typical Costs for U.S. Borrower
- Average “low book” value: $2800
- Average loan principal: $1185
- Principal and fees due in 30 days: $1481.25 ($296.25 fee + $1185 principal)
- Average loan fee: 25% per month
- Average total: fees paid (8 rollovers) $2370
- Total paid in principal & fees (8 rollovers: $3555
NOTE: often additional DMV & Reg. fees. Depends on State/Province.
So… should you buy a car title loan franchise? We say no. Take the $25K to $45K franchise fee and loan it out instead in the form of car title loans. Depending on your State, these funds will put another $2000 to as much as $11,250+ on your top line income statement!
Tactics & Strategies for Title Loan Lenders http://www.AutomobilePawn.com
702-208-6736 [10 AM – 4 PM PDT]