Searching for the best title loan can be a difficult process; especially when searching for an online title loan. Often just being in the position of needing one of these loans is stressful.
Add to that the time urgency that usually accompanies a title loan need and we understand the difficulty of making sure you find the best title loan for your situation.
When shopping for a title loan, the total cost should play a major factor in whether to not to proceed. Remember, title loans are not the answer to every financial problem.
Take the time to determine if one is the right choice for your situation. Car title loans are secured loans, and defaulting on one can mean losing your vehicle.
They are meant to be short term solutions to short term funding shortages. With that said, there are two key factors that make up what a title loan will cost:
- Interest Rates; and
We have discussed interest rates in detail, the other important part of the car title loan cost equation is fees. We recommend looking at what type of fees the lender you choose charges.
Based on our opinion, there are a couple of fees that are reasonable, and others that are not reasonable.
It is important to distinguish between the two. It is also critical to understand any and all fees associated with the loan prior to signing any agreement. In our opinion, the following are what we consider reasonable fees:
- Lien fees
- Late Payment fees
- Recovery Fees
As you can see that list is pretty short. Any other fees associated with a title loan are either probably not reasonable, or at least require understanding how they will effect the total loan cost. These can include:
- Loan Origination Fees
- Prepayments fees or penalties
- Convenience payment fees
First, let’s look at the fees that could be considered reasonable.
Reasonable Title Loan Fees
The following is just our opinion, but the best title loan companies do not charge a lot of fees. In fact the opposite is true. There are two fees which we consider reasonable for lenders to charge related to title loans. Some of the very best title loan companies will not charge any fees.
The first fee that is a reasonable fee is the lien fee. This is the cost the lender will have to pay to have their lien recorded on your title. This is a cost they will pay to the state motor vehicle department. By charging the borrower the fee they are simply recovering their cost.
This is reasonable with one stipulation. That is the lender is charging the actual cost to record the lien and not anything more. To find out what the cost is in your state see our page on lien fees per state. If the lender is charging more than it costs them to record the lien, then this requires some looking in to.
Late Payment Fees
Title lenders, and all lenders for that matter, have expenses to cover. This often includes payments on debt among other expenses. They count on borrowers making their payments on time to be able to cover their expenses.
Making late payments may require the lender to make late payments to their lenders. A late payment fee is very common, again with one stipulation. The late payment fee should be reasonable.
Many states have limits on how much a lender can charge per late payment. This can be a flat fee or a percentage of the payment. Either way, find out what late fee the lender charges and make sure it is reasonable.
The other category of fee is associated with borrowers that default on the loan and require the lender to repossess the vehicle. We have said before that the only party that gains in this situation is the recovery company.
The lender is in business to lend and service loans. Most, if not all, lenders would much prefer to have all borrowers make their payments on time rather than have to repossess a vehicle. The same can be said for title lenders.
Unfortunately some borrowers do default on loans. In these cases repossession is, unfortunately, necessary. The recovery companies that repossess vehicles charge fees. It is reasonable that these fees be paid by the borrower.
This can be accomplished in two different ways. The first is if and when the borrower retrieves the vehicle from the recovery company. The second is when the lender sells the vehicle, should the borrower choose not to retrieve the vehicle.
In either case it is reasonable for the borrower to cover the cost of repossession. In the second case the cost would come out of the sale proceeds from selling the vehicle.
Recovery fees can and do vary depending on location and the specifics of the situation, but they can be significant. These are not always spelled out in the loan agreement. Let your lender know if you are going to make a late payment and try to avoid defaulting on the loan.
Unreasonable Car Title Loan Fees
Just like there are reasonable fees there are also unreasonable fees. These are fees that, in our opinion, are above and beyond what reputable and honest title lenders should be charging. In fact, some states prohibit the fees we have in this category.
Loan Origination Fees
Any fee to originate a title loan is unreasonable. Lenders already charge interest rates to create income, adding any sort of origination fee is above and beyondn what we consider reaosnable. Some states also agree and do not permit these types of fees.
Pre-payment Fees or Penalties
These types of fess or penalties are definitely something you want to avoid. You should be able to prepay your title loan at any time without penalty. You should also be able to make early and extra payments to reduce your principal at any time during your loan.
Doing so will help pay off your title loan fast. By charging a prepayment penalty it can make an already costly loan even more costly and is simply not reasonable.
Convenince fees are those fees associated with making a pyment using a conveninet method like a debit card. While it is true that title lenders do have to pay a processor to accept debit cards, so does every other business that does so. This is the cost of doing business and should be factored in with other overhead costs.
Making your title loan payments online using one of these convenient method should not cost you more. The best title loan companies ae happy to provide a variety of payment methods with the goal of making it as easy as possible for borrowers to make their payments.
After all, that is their business. Charging borrowers extra to make a certain type of payment is, in our opinion, unreasonable.
Finding the Best Title Loan Company
Finding the best title loan company should include an examination of both the interest rate and related fees. As we have discussed, certain fees can be considered reasonable, others are not. Make sure to include the cost of fees in your total cost when performing the cost benefit analysis.
Remember when searching for the best title loan that you are the customer and have the final say. Never let a lender pressure you into signing a loan agreement that you do not fully understand. If there are fees included, make sure they are reasonable. If they are not, simply move on to another lender.