Illinois Law on Title Loans

When you need fast cash and don't have easy access to credit, a title loan can seem like a solution. However, it can be a costly move in the long run. Illinois doesn’t legally cap the amount of interest the lender can charge. As a result, title loan companies may charge triple-digit interest percentages. When you borrow money using your vehicle title as collateral, you risk losing your car through repossession if you can’t repay your loan when the due date arrives.

Title Loan Application Requirements

In Illinois, you must be in possession of the physical title of the vehicle in order to take out a title loan. You give the lender the title to your vehicle; the lender gives you cash, check or a money order equal to the principal amount of the loan. In addition, Illinois requires the lender to provide you with a pamphlet from the Department of Financial and Professional Regulation-Division Financial Institutions, along with a contact phone number for information regarding debt management.

You must provide either a check stub from your employer, or proof of other benefits so that the lender can verify your income.

Title Loan Terms in Illinois

Title loans in Illinois are calculated using simple interest, which is calculated monthly. Calculations go from the date of one month to the same date of the next, regardless of the number of days in the month. Title loans must have equal payments; your lender may require payments weekly, monthly or semimonthly. The terms and payment schedule will be stated clearly in your loan agreement.

Illinois caps the amount of a title loan at $4,000, but the monthly payments on the loan can’t exceed 50 percent of your gross monthly income. The Illinois Department of Financial and Professional Regulation states that title loans should only be considered for short-term solutions, due to their prohibitive terms. Make sure you can repay the loan before signing the contract.

Satisfaction of the Title Loan

You may pay the loan off early on any payment due date and avoid additional interest charges. Once you pay the balance of the loan, the lender has 24 hours to release liens, provide you with proof of lien release, and return your title. If you write a check for the last payment, the lender can wait 5 business days to ensure that the check has cleared.

Once you’ve paid your title loan, you must wait at least 15 days to take out another. The lender must search the Illinois database to verify that you don’t have any outstanding title loans within the last 15 days. You may only have one title loan at a time.

Refinance and Default

If you’ve paid at least 20 percent of the original amount of the loan, you may ask the lender to refinance. The principal amount of the new loan can’t exceed the previously outstanding balance of the old loan. However, the lender can increase your interest rate and add additional fees to the amount you owe.

If you’re in default of the loan, the lender must contact you regarding surrender of your vehicle. If you cannot pay the loan, it’s best to work with the lender so you can retrieve your belongings from the car and avoid towing costs and additional fees. According to Illinois law, the lender may not repossess your vehicle and lease it back to you.