Why car title loans are the financial drug many Americans can't quit

It sounds like a financial version of Ebola: Loans with 300 percent annual interest, hidden fees, little regulation and the potential to not just ruin a borrower’s credit but their job and livelihood as well.

The business of loaning money to a stranger, in exchange for a lien on their vehicle’s title, has become the fastest-growing financial instrument in America over the last five years — but it also can mean a fiscal death sentence for thousands of folks who already have one foot in the grave.

Unlike a credit card, when you default on a title loan, the lender has the immediate right to seize your vehicle and then sell it for the overdue balance after a 10- to 30-day holding period.

You usually get nothing if this happens. I used to operate an auto auction that served title lenders with repossessed vehicles. Just from the specialized license plates alone that listed "educator,” "veteran,” and "military service,” I saw the sad endings to countless folks who often times had owned and maintained the same car for well over a decade.

In 17 states, title lenders can offer loans with APRs of more than 167 percent; in 12 others, such loans are allowed within tighter limits. Title loan stores have the moral standing of strip clubs in the eyes of many — an image made worse by the bad behaviors of some predatory outfits.

So why should anyone ever get one?

Well, there is a surprising reality of this business: Thousands of consumers have used title loans without an apocalyptic outcome. From the paycheck-to-paycheck American that other financial institutions won't touch, to blue-collar businessmen that often need a cash advance to pay for anything from their employee's wages to the equipment for their operations, people use title loans to survive.

The rate of success for title loans is about 80 percent, with both commercial and individual customers typically within five percent of that average. (That 20 percent default rate compares to the roughly 1 percent default rate automakers’ finance arms usually see on new-vehicle loans.)