There are several factors to consider before applying for a car title loan. It pays to do some research before committing to any loan. This is especially true for car title loans as the rates and terms are very different depending on the lender you choose.
This makes finding the best title loan company more important than with other loans. Payday loans, for example, have similar fees and charges across lenders. This is what makes shopping for payday loans different from title loans.
Top Three Title Loan Factors
The key factors that will affect all car title loans can be divided into the following three categories:
- Borrower Related
- Lender Related
- Loan Related
We will cover each of these three categories in detail in the post. The goal is to inform potential title loan borrowers of the details related to each car title loan factor to help make a better decision.
Before we get into details, lets discuss a few facts that are true for all title loans.
Car title loans are expensive. This is true for even the best title loans. This doe not mean, however, that all title lenders charge the same rates. It is possible to get a much more affordable title loan by choosing a lower cost lender.
Car title loans are meant to be short term solutions. When you try to make a title loan long term the costs skyrocket making an already expensive loan extremely expensive. Our previous post on title loan costs shows this in detail.
On to the factors when considering a title loan.
Borrower Related
The first group of factors are related to the borrower. These include the vehicle owned and used for the loan, the amount needed, and the income to support the payments.
There are some guidelines we suggest meeting to be considered a good title loan candidate. We cover these in detail in our post about whether or not a title loan is a good choice.
In short, the following should be true to be considered a good title loan candidate:
- The loan amount will need to be sufficient to cover the expense (reason for needing the loan)
- The vehicle used for the loan should have enough equity to support the loan amount
- You will need to have a reliable means of repaying the loan on time
- Finally, the benefit received from the loan should outweigh the cost.
While it is possible to get a title loan on an older car, this is only advised if certain conditions are true. For example, the vehicle should have a sufficient amount of equity.
Credit requirements are another borrower related factor. Car title loans are secured loans and therefor usually do not require good credit. Some lenders also offer title loans with no credit check for those without perfect credit.
Lender Related
This group of factors is very important to getting a loan that goes smoothly. With the recent growth in online title loans there are more lenders in this space than there were several years ago.
It is essential to choose your lender wisely and only move forward if you feel comfortable. Finding the best online title loan can be challenging.
Lender related factors include:
Interest Rate and Loan Term
The lender will dictate the interest rate and repayment period. Each state has different interest rate maximums, and lenders often charge different interest rates.
The loan term (length) is also determined by the lender. You may have a choice within a range. Some lenders have minimum terms and most have maximum terms.
Generally, the shorter the loan term the lower the total cost of the loan all else being equal. This is illustrated by using the car title loan calculator to enter different loan terms and view the change in monthly payment.
Additional Loan Terms and Conditions
Additionally, the lender will determine the terms and conditions of the loan. This includes payment methods, what constitutes a default, and when repossession is used to collect on a default.
Make sure you understand the payment methods accepted. You should be able to make your payments easily in a way that is convenient. More lenders are adding online payment methods, although some still require a store visit.
Other Requirements
Different lenders also have different requirements. Some require credit checks, references, spare keys, roadside assistance, and GPS devices. Make sure you can meet these requirements and understand any costs associated with them.
For example, if the lender adds a GPS device, you may be required to pay a fee. If you are not ok with the fee, move on to another lender.
Loan Related
The final category is loan related. When we refer to this we mean the interest rate, loan term, and any fees associated with the loan.
As mentioned, car title loans are short term solutions. Avoid long term title loans; the costs are excessive.
A recent trend with some online lenders is extending the loan term far beyond a year and in some cases three or more years. As shown in the graphs, this only reduces the monthly payment slightly while increasing the total loan cost substantially.
Summary
Car title loans are usually higher cost than other credit, but they do not have to be excessively expensive. It is possible to get a comparably cheap title loan by choosing your lender wisely. There are a number of factors that can lead to a title loan that improves your situation versus one that leads to more problems.
Make sure to understand the total loan cost and don’t prioritize a minor reduction in monthly payment over a major increase in total loan cost. Choose a lender that offers terms and conditions you are comfortable with.
If you are not comfortable with the loan terms, ask for a revision. If the lender refuses, find a different lender. The best way to make a wise decision is sometimes to walk away from a loan that doesn’t make sense.