How to use a Truth in Lending Statement to shop for Title Loans.

A “Truth in Lending Statement” is a statement informing consumers of the actual cost of credit.  This is important because it allows you to compare the actual cost of different types of credit, different lenders, and different loan types.  Usually, on the first page of your loan agreement, you will notice a table with four cells on the first line. The first two have a thick outline to stand out. Box one is the Annual percentage Rate (APR) of the loan.   Box two is the Finance Charge; this is the amount the credit will cost you. The third Box is the Amount Financed.  In the case of a Title Loan this is the amount you are borrowing plus any fees you are being charge for the loan.  The fourth is the Total of Payments; meaning the total dollar amount you will have paid assuming you make every payment as scheduled. The nice thing about these statements is that every most lenders are required to provide you with one in the same or similar format; if they don’t, you are allowed to ask for one.

When looking at Title Loans, it is important to note the difference between APR and the Monthly Interest Rate.  Most Title Lenders use monthly interest rates; however the APR will be listed on the Truth in Lending Statement.  The APR is simply the Monthly Interest Rate times 12.  A Monthly Interest Rate of 15% would equate to an APR of 180% (12 times 15).  An APR of 240% would equate to a monthly interest rate of 20% (240 divided by 12).  For every 1% increase in the monthly interest rate, the APR increases by 12%, which can add up quickly.

Because the Truth in Lending Statement requires the APR to be listed, in an obvious display, your ability to compare lenders is made much easier.  You do not need to understand any complex financial equations or terms.  For example, let’s look at the four items from a Truth in Lending Statement for a $2000 loan with a 12 month term and an APR of 200%:

TIL1

As you can see in this statement this loan would cost you $2,746.46 to borrow $2000.  Your total payback amount is $4,746.46.  In simple terms, this is a very expensive loan, you are paying back much more than you originally borrowed.  Now lets look at the same information for the same loan with an APR of 96% (8% per month):

TIL2

As you can see in this statement this loan would cost you $1,184.68 to borrow $2000.  Your total payback amount is $3,184.68.  Instead of paying $2,746.46 in finance charges you are only paying $1,184.68; a difference of $1,561.78 or over $130 a month.  On a $2,000 loan this is a significant difference.  The finance charges on the 8% per month loan are significantly less than half of the finance charges on the 16.67% loan.

Use the information provided to you by the Truth in Lending Statement to make sure you understand exactly what the lender is charging you for the loan. And, as always, if you are not comfortable with the terms, don’t be afraid to walk away from the loan.