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What is an Illinois Title Loan?

Title loans are loans that are based on an asset that the borrower has put up as collateral to secure the loan, rather than on the borrower’s credit. Usually, it is the borrower’s car that is used to secure the loan, and loan amounts are hence generally determined by the value of the car and tend to be relatively small (usually about $10,000). Specifics for title loans differ for every state (that is, for the states in which they are legal). In Illinois, title loans cannot be higher than $4000. Additionally, a title loan in Illinois cannot be of an amount that will generate a monthly payment (including interest and other financial fees) which is more than 50% of the borrower’s monthly income. That said, because there is no limit on how high lenders can set interest rates, it is quite possible for borrowers to end up with considerably severe monthly payments.

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Rates (%)

There is presently no cap on interest rates for title loans in Illinois. And since title loans are usually small in amount and short-term, interest rates tend to be very high- often 25% per month, which amounts to a 300% APR, and sometimes even higher than this.

Credit Requirements

Title loans are secured by the borrower putting up an asset, and so it is the value of the asset and not the applicant’s credit which will determine eligibility. Additionally, to obtain a title loan in Illinois, a borrower must not have had any outstanding loan debts for the past 15 days.

Laws

In Illinois, title loans laws are presented in the Consumer Installment Loan Act under code § 110.300-430. Specific restrictions include: Title loans must not be for an amount of more than $4000. Title loans also must not require payments which are greater than 50% of the borrower’s income. On the lending side, lenders are not required to limit interest rates. Also, lenders are not allowed to allow for balloon payments.

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