I would like to spend some time explaining a growing change in the title loan industry and how it effects you, the borrower.
When you are looking for title loans online most online title loan companies are vastly different from one another. Here are the points you should be looking at on your quest for title loans online:
TITLE LOAN INTEREST RATES
The basic model most follow is no prepayment fees, quotes are on a monthly interest rate instead of a yearly APR and you have nothing to pay upfront. You should know what that means…
When someone says that the interest rate is… say… 12% what they MEAN is the interest rate is 144% APR. Sounds high but it really isn’t IF you can payback the loan back at anytime without penalty. So lets do that math:
Say you borrowed $2000.
That means your interest for one year at 144% is $2880 and your total payback is $4880. Pretty easy right? Not even close…. a lot depends on HOW the loan is structured.
Let’s take a look at Western Sky lending. This is straight off their site:
“The interest rate on a typical loan of $2,600 is 135% with an APR of approximately 139%. Borrowers may prepay their loans at any time without penalty. There are no upfront fees. If you are approved and your loan is funded, we will collect a $75 loan origination fee from the proceeds of the loan”. This sounds really normal and reasonable considering that is what normal title loan lenders charge. The exception? We’ll it’s how long they write the loan for…
If you do the math…. they write the loan for $10,000 and you get $9925 because you already got nailed $75 (which is normal) and the APR sounds great at 89.68%. So you look at the amount of the payment and this means that almost ALL of each payment is going to interest and very little to principal. $743.49 x 84 months is $62,453! That’s right… you borrowed $10,000 and you are paying back $62,453.16. So how come it’s so much? Because it’s structured as a fully amortized loan over the course of 84 months. Do you see the catch? It’s NOT the APR. It’s the loan structure… 84 months. If they would have written the loan for payback for say one year or two, it would have been interest of only $8968.00 instead of $52,453!
Now is that unfair? No. If you are willing to payback a loan for 7 years… and you had the money out that long then you must be willing to do that and it’s not their fault. It’s not buyer-beware. I am sure they are awesome people with an great process. it’s just expensive as hell but you know what? They tell you that up front. THIS IS EXPENSIVE. If you smoke and the label says “this will kill you” and you die, you have no remorse here from me.
So what should you be looking for when getting an online title loan from the numerous online title loans out there? These things:
- How long will they write the note for?
- What is the yearly interest rate and how does it translate to a monthly interest rate?
- What are my payments based on the above.
- Is this a fully amortized loan (meaning it has an end without a balloon payment at the end)
- Do you pull my credit and for what purpose (Western Sky uses it for the purpose of the loan while others just to see if you are real and nothing more)
An educated customers is the best customer! Get a title loan… they are worth every penny