Question: I heard that lots of loans are illegal in Arizona, and that car title loans are all that's available now. Where can you borrow money fast, and legally, if you have poor credit? What if you don't want to put your car at risk?--Phoenix
Answer: Arizona's laws changed in 2010, disallowing the high interest rates of payday loans, so title loans are a common kind of short-term loan available there, for those with bad credit. Laws change often, though, so the situation may alter again.
Title loans require you to offer your car as collateral. If you fail to repay the money when it's due, and don't make arrangements for an extension, the lender can repossess your car. That's good for the lender, but not so good if you rely on your vehicle for transportation. The amount of loan you can receive depends on the value of your car as well as your income. Currently, you don't need to have the car paid off in full in Arizona to get a title loan on the remaining value, but that could change.
Payday loans or short-term installment loans are "signature loans," meaning that you don't have to offer any collateral other than your signature. If you default on the loan, the lender has to sue you to collect the money. Ideally, of course, you'll pay the loan back on time and it won't matter, but there's an advantage to not putting your transportation at risk. Those are the kinds of loans that were made unprofitable when the laws changed in 2010, so lenders generally don't offer them in Arizona now.
Even with the restrictions, some companies offer similar products which allow you to borrow money quickly for a few weeks.
Some places offer pre-paid debit cards with a line of credit, for those who have their paycheck or other regular payment automatically direct-deposited onto their debit card. If you need money before the next payment arrives, you can get a cash advance for a fee plus interest. When your direct deposit appears on the card, the loan is paid with the proceeds taken out automatically.
A similar arrangement is a prepaid card with overdraft protection. If you spend more than the amount of money on the card, the payment will still go through, but you'll be charged a fee, for example 15 percent of the negative balance, and the amount will be taken out of your next direct deposit.
Title loans and other bad-credit loans have interest rates or fees higher than bank loans because the lender is taking more of a risk. If you have the time to apply at a local bank and have credit good enough to be approved, that would be a cheaper option. If you need money quickly and have poor credit, there are many companies willing to help, but make sure you understand all the costs involved. Lenders are required by law to disclose them. The best way to borrow cheaply is to make sure you can pay off the loan when it's due and not extend it, since the fees add up quickly with each extension.
I wish they wouldn't keep changing these laws. It seems like just when you figure out what's available and get used to something, it changes.--G.H.
The idea was to stop predatory lending by capping the interest rate at 36%. The problem is that companies can't afford to lend money to high-risk people for short-term loans if they can't charge more than that.--AZ123
36% is ridiculous if you're talking about an installment loan for a year or two, but it really doesn't make sense to compare a one-time fee of $15, let's say, to borrow money for less than 30 days, and then annualize it to come up with a ridiculous percentage rate. --anon