The rusting 1994 Oldsmobile sitting in a driveway just outside St. Louis was an unlikely cash machine. That was until the car's owner, a 30-year-old hospital lab technician, saw a television commercial describing how to get cash from just such a car, in the form of a short-term loan.
The lab technician, Caroline O'Connor, who needed about $1,000 to cover her rent and electricity bills, believed she had found a financial lifeline. "It was a relief," she said. "I did not have to beg everyone for the money."
Her loan carried an annual interest rate of 171 percent. More than two years and $992.78 in debt later, her car was repossessed.
"These companies put people in a hole that they can't get out of," O'Connor said.
The automobile is at the center of the biggest boom in subprime lending since the mortgage crisis. The market for loans to buy used cars is growing rapidly. And similar to how a red-hot mortgage market once coaxed millions of borrowers into recklessly tapping the equity in their homes, the new boom is also leading people to take out risky lines of credit known as title loans.
In these loans, which can last as long as two years or as little as a month, borrowers turn over the title of their cars in exchange for cash — typically a percentage of the cars' estimated resale values.
"Turn your car title into holiday cash," TitleMax, a large title lender, declared in a recent television commercial, showing a Christmas stocking overflowing with money.
More than 1.1 million households in the United States used auto title loans in 2013, according to a survey by the Federal Deposit Insurance Corporation.
For many borrowers, title loans are having ruinous financial consequences, causing owners to lose their vehicles and plunging them further into debt. A review by the New York Times of more than three dozen loan agreements found that after factoring in various fees, the effective interest rates ranged from nearly 80 percent to over 500 percent. While some loans come with terms of 30 days, many borrowers, unable to pay the full loan and interest payments, say that they are forced to renew the loans at the end of each month, incurring a new round of fees.
Many people find that they are struggling to keep up almost as soon as they drive off with the cash. As a result, roughly one in every six title-loan borrowers will have the car repossessed, according to an analysis of title loans by the Center for Responsible Lending, a nonprofit in Durham, N.C.
"This is nothing but government-authorized loan sharking," said Scott A. Surovell, a Virginia lawmaker who has proposed bills that would further rein in title lenders.
The lenders argue that they are providing a source of credit for people who cannot obtain less-expensive loans from banks. The high interest rates, the lenders say, are necessary to offset the risk that borrowers will stop paying their bills.
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The title lending industry thrives because of the car's importance.
While people seeking title loans are often at their most desperate — dealing with a job loss, a divorce or a family illness — the lenders are willing to extend them loans because they know that most borrowers will pay their bill to keep their cars. Some lenders do not even bother to assess a borrower's credit history.
"The threat of repossession turns the borrower into an annuity for the lenders," said Diane Standaert, the director of state policy at the Center for Responsible Lending.
Unable to raise the thousands of dollars he needed to repair his car, Ken Chicosky, a 39-year-old Army veteran, felt desperate. He received a $4,000 loan from Cash America, a lender with a storefront in his Austin, Tex., neighborhood.
The loan, which came with an annual interest rate of 98 percent, helped him fix up the 2008 Audi that he relied on for work, but it has sunk his credit score. Chicosky, who is also attending college, uses some of his financial aid money to pay his title-loan bill.
Chicosky said he knew the loan was a bad decision when he received the first bill. It detailed how he would have to pay a total of $9,346 — a sum made up of principal, interest and other fees. "When you are in a situation like that, you don't ask very many questions," he said.
The title lenders are benefiting as state authorities restrict payday loans, effectively pushing payday lenders out of many states. While title loans share many of the same features — in some cases carrying rates that eclipse those on payday loans — they have so far escaped a similar crackdown.
In 21 states, car title lending is expressly permitted, with title lenders charging interest of up to 300 percent a year. In most other states, lenders can make loans with cars as collateral, but at lower interest rates.
Johanna Pimentel said she and both of her brothers had taken out multiple title loans.
"They are everywhere, like liquor stores," she said.
Pimentel, 32, had moved her family out of Ferguson, Mo., to a higher-priced suburb of St. Louis that promised better schools. But after a divorce, she had trouble paying her rent.
Pimentel took out a $3,461 title loan using her 2002 Suburban as collateral. After falling behind, she woke up one morning last March to find that the car had been repossessed. Without it, she could not continue to run her day care business.