Car title loans are not only expensive but also risky for borrowers. That's because the loan is secured by the car 's title, so the lender can seize the car and sell it to pay off the loan if the borrower does not make a payment when due. Arizona is one of 20 states where title loans are legal. However, lenders face restrictions on the amount of interest they can charge, and cannot use force or illegal actions if they end up repossessing your car.
Interest Rate Cap
Arizona caps the interest rate that title lenders can charge under an auto title loan – even so, the rates are prohibitive. At the time of publication, the maximum interest rate is:
- 17 percent per month on loans under $500
- 15 percent per month on loans between $500 and $2,500
- 13 percent a month on loans between $2,501 and $5,000
- 10 percent a month for loans over $5,000.
If the lender tries to charge you more than the maximum finance charges, you have the right to cancel the finance contract.
The Right to Repossess
If you do not make a payment when due, you are in default of your financing contract. You might also be in default if you do not carry valid insurance or if you fail to perform any other obligations in the contract. According to Arizona's title loan repossession laws, any of these events trigger the lender's right to take possession of your car. The lender does not need to notify you of the repossession, but cannot "breach the peace" while seizing your vehicle. In general terms, this means the lender cannot make threats, enter your home or force you to surrender your vehicle without a court order.
Post Repossession Sale
Once your car has been repossessed, the lender must sell it either by private sale or public auction. The sale must be conducted in a "commercially reasonable manner," meaning that the lender must act in good faith according to usual market practice. However, the lender does not have to secure the best price for the car. Arizona residents have the right to buy back, or "redeem," a repossessed vehicle at any time before the sale. To redeem the car, you must pay both the lender's expenses and the full balance due under the finance agreement (not only the payments in default).
The Proceeds of Sale
The lender must use the sale proceeds to off the loan balance as well as the expenses incurred while repossessing and selling the vehicle. The lender must return any surplus money to you. If the sale proceeds are not enough to cover the outstanding loan plus expenses, then you are liable for the deficiency. The lender can sue you for the remaining balance.