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.
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"These companies put people in a hole that they can't get out of," Ms. 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.
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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.
They are, roughly speaking, the home equity loans of subprime auto. 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, declares 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 — the first time the agency has included the loans in its annual survey.
Title loans are becoming an increasingly prevalent form of high-cost, short-term credit in subprime finance, as regulators in a number of states crack down on payday loans.
For many borrowers, title loans, also sometimes known as motor-vehicle equity lines of credit or title pawns, 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 more than 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.
Customers of TitleMax, for example, typically renewed their loans eight times, a former president of the company disclosed in a 2009 deposition.
And because many lenders make the loan based on an assessment of a used car's resale value, not on a borrower's ability to repay that money, 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 borrowers who take out title loans have their cars repossessed, according to an analysis of 561 title loans by the Center for Responsible Lending, a nonprofit in Durham, N.C.
The lenders argue that they are providing a source of credit for people who are unable to 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.
Title loans are part of a broader lending boom tied to used cars. Auto loans allowing subprime borrowers — those with credit scores at 640 or below — to buy cars have surged in the last five years.
The high interest rates on the loans have enticed an influx of Wall Street money. Private equity firms are investing in lenders, and some big banks are ramping up their auto lending to people with blemished credit.
Propelling this lending spree are the cars themselves, and how essential they are in people's lives.
In most parts of the country, a car is vital to participating in the work force, and lenders are betting that people will do virtually anything to keep their cars, choosing to make auto loan payments before paying for just about any other expense.
The title lending industry, perhaps more than any other facet of subprime auto lending, 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," Diane Standaert, the director of state policy at the Center for Responsible Lending, said.
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 interest rate of 98.3 percent, helped him fix up the 2008 Audi that he relied on for work, but it has torpedoed his credit score. Mr. Chicosky, who is also attending college, uses some of his financial aid money to pay his title loan bill.
Mr. 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.
Cash America declined to comment.
Rapid Expansion
Clutching handfuls of cash, a former Miss America contestant zips around in a red sports car, dancing and rapping about how TitleMax has "your real money."
Commercials like these help companies like TitleMax entice borrowers to take on the costly loans. TitleMax, a brand of TMX Finance, is privately held — like virtually all of the title loan companies — and does not disclose much financial information. But a regulatory filing for the first three months of 2013 offers a glimpse into the industry's tremendous growth.
During that period, the profits at TMX Finance rose by 47 percent from the same period two years earlier, and the number of stores it operated nearly doubled to 1,108. The total volume of loans originated during the first three months of last year reached $169 million, up 67 percent from the same period in 2011.
TMX Finance, based in Savannah, Ga., wants to expand further, opening stores in states where regulations are "favorable," according to a 2013 regulatory filing. Only a few years after emerging from bankruptcy in 2009, the company is enjoying an influx of cash from mainstream investors. Big bond funds managed by Legg Mason and Putnam Investments have purchased portions of TMX Finance's debt. The company also borrowed $17.5 million to buy a private jet.
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