Affordable is not often a word that comes to mind when discussing car title loans. An affordable car title loan should be the goal of every borrower, and should also be the goal for the title lender as well. Making a loan that the borrower cannot afford is not good for either party.
It is important to make every effort to make sure the loan is affordable. In some cases this might require a hard look at spending and a detailed budget. While this may not be an easy task; it is far better than signing a loan agreement without the ability to repay the loan.
Definition of Affordable Car Title Loans
Car title loans are expensive. Even the lowest rate title loans are an expensive form of credit compared to other alternatives. This does not mean there are not affordable car title loans, there are. It just means defining what is affordable.
The same car title loan may be affordable for one borrower and not for another borrower. It all depends on the borrower’s the ability to repay the loan. You can get a car title loan without income verification, but this doesn’t mean you should get a loan you cannot repay.
For a car title loan to be affordable the borrower needs to be able to make the payment(s), in full and on time, without any issue. Additionally, just because a car title loan may be affordable, does not mean it is reasonable. We’ll cover this a bit later.
Cheap does not always mean Affordable
The cheapest title loan may not equal an affordable title loan. If the borrower’s expenses already meet or exceed their income, then no loan will be affordable. Meaning, they will not be able to make the payments regardless of the interest rate on the loan.
The interest rate for a car title loan, even a low interest car title loan, is typically higher than most other forms of credit.
How to make a Car Title Loan Affordable
The key to finding an affordable car title loan is determining what you can afford to repay. In the situation discussed previously, where the borrowers expenses currently meet or exceed income, there are two ways to make a car title loan (or any other loan) affordable.
The first is increase the income. This is not always possible, but in cases where the borrower has the capability to earn more by working more hours or other means, this is one way to make a loan affordable.
The additional income must increase the income to the point that their total income minus expenses leaves enough left to make the car title loan payment in full. Additionally, the extra income needs to be consistent. This is especially true for loans lasting longer than 30 days.
The second way to make a car title loan affordable is to decrease expenses. This involves a hard look at your spending. Lenders will usually only verify income to make sure you earn enough to repay the loan.
To figure out if you the car title loan is actually affordable you need to compare your expenses to your income. There should be enough excess to cover the title loan payment.
Income versus Expenses Comparison
To be sure you can get an affordable car title loan make a list of your expenses. Total the list, and subtract the number from your income (take home income). If the number is zero or negative, you will need to reduce your expenses to be able to afford any additional spending.
Take a look at the list of expenses and find any that you can live without. This is different for each person. Prioritize expenses with the the highest priority items at the top of the list.
Expenses like rent and utilities should be prioritized first. Then take a look at the remainder and see if there are any areas you can reduce or eliminate. There are plenty of ways to save money, we won’t get into details here.
Affordable versus Reasonable
Another key aspect of a car title loan is finding one that is reasonable. Being able to afford a car title loan does not necessarily mean that loan is reasonable. Some car title loans are reasonable, many are not. The definition of a reasonable car title loan is subjective.
Meaning, what one borrower may consider reasonable, another borrower may not. It depends on the benefit the car title loan provides. In a previous post about whether or not car title loans are worth it we provide several examples of cost benefit analyses.
Regardless, just because you can afford a car title loan with a $300 a month payment, does not necessarily mean that the loan is reasonable. It is critical to look at the total cost of the loan. For example, if it costs $4,000 to repay a $1,000 loan, that is not a reasonable loan.
Affordable Car Title Loans and Terms
Affordable car title loans are short term loans meant to solve short term financial problems. Car title loans should not be used as a long term solution. The reason is rather simple. They are expensive, and amortizing a car title loan over a long period results in an extraordinary amount of interest.
A 3 or 4 year car title loan can result in a very high total cost. Take a look at the recent post about car title loan terms to see what happens when you make a title loan a long term loan.
An affordable car title loan is possible if you plan correctly and find a decent lender. Regardless, always explore other options before getting a car title loan. Always factor in the total cost of the loan, not just the monthly payment. If you do get a car title loan, make sure it is both affordable and reasonable.