Vivian’s Story

In January, Vivian needed money to pay her Christmas bills and thought a car title loan from a pawnshop was a good idea. She got $1,000 from the pawnshop (although her car was worth $5,000), and gave the pawnshop her car’s title. Vivian promised to pay back the loan in six months.

Each month, the pawnshop charged her 10 percent for the loan, plus the loan payment. In May, Vivian could not make her car loan payment. The pawnshop came and took her car away (charging her a repossession fee of $50). In June, she had the money to pay off the balance of the loan, plus the $50, and got her car back. When she went to pick it up, the shop charged her another $150 for car storage. The pawnshop owner also told her he was getting ready to sell her car. In short, this is what the loan cost Vivian:

  • Loan amount: $1,000 (pawnshop kept the title to the car, worth $5,000)
  • Interest charged: $600 (10 percent a month for six months)
  • Repossession charge: $50
  • Car storage charge: $150 ($5 a day for 30 days)
  • Total cost: $1,800

Vivian was shocked that she came so close to losing her car and paid, in effect, an 80 percent interest rate. After paying the money and getting her car back, Vivian made two promises to herself: (1) never to use her car title again to get a loan, and (2) never to spend so much on Christmas gifts that she needed a loan.