We have written about performing a cost benefit analysis to determine whether or not a title loan is the right choice many times. A cost benefit analysis is a key preparation step that is recommended before committing to any title loan.
There is a method for completing this analysis quickly to make a better informed decision about getting a car title loan. Essentially it comes down to answering a simple question:
“Is the benefit received from getting the car title loan worth more than the cost to repay the loan?”
While the question itself is fairly straightforward, coming up with a good answer is not always easy. There are certain benefits that can be very hard to quantify in dollar terms.
Car Title Loan Benefit Types
There are two types of benefits you can receive from getting a car title loan. The first is a monetary benefit. These are usually easier to perform a cost benefit analysis because you can easily assign a monetary value to the benefit and do a simple comparison.
The second type is a non-monetary benefit. These are much more difficult to compare because it is not easy to compare without assigning a monetary value. Assigning a monetary value to a non-monetary benefit is a judgement call.
Monetary Benefit Examples
To help explain how to complete the cost benefit let’s look at a few examples with monetary benefits.
- Paying your Rent to Avoid Eviction
The first example we’ll look at is paying your rent to avoid eviction. In this case you should be able to assign a monetary value to what it would cost you to have to find a new place to live, pay the deposit on the new place, pay for moving, and repay the rent and fees due to the landlord.
Add these costs together and assign a value. Then compare it to the cost of the title loan. If the cost is greater than the benefit, then the title loan is not a good choice and vice versa.
2. An Emergency Car Repair.
The next example is an emergency or unexpected car repair. In this example you have an emergency car repair. Determine the cost of waiting until you can save enough money to pay for the repair on your own.
You can do this by defining how much it would cost to go without your car during this period.
- Do you need to rent a car? If yes add this cost.
- Can you take public transportation? If yes add this cost.
- Will you need to take a taxi? If yes add this cost.
Once you have the total cost of waiting for the repair, you can compare it to cost of a title loan. If the cost is greater than the benefit, then the title loan is not a good choice and vice versa.
Non-Monetary Benefit Examples
- Unexpected Medical Bill
The first non-monetary example we’ll look at is an unexpected medical bill. It is expensive to get medical care today and even a very short hospital visit can cost a significant amount of money.
If you have a medical bill that needs to be paid, the cost of not paying the bill means it probably goes to collections. This can harm your credit and probably will increase stress.
It is difficult to assign a dollar value to getting the bill paid on time. Doing so will keep your credit score intact, avoid collections, and may reduce stress.
If not paying the bill is going to really bother you then try to assessing a value to how much it would bother you. Do you have a large purchase like a home, or other reason you need to keep your credit score intact? If yes try to assign a value to that.
Then compare that to the cost of the title loan to figure out if it makes sense.
2. Classic Car Title Loan
Another non-monetary benefit is keeping your classic or collector car versus selling it. A title loan allows you to borrow money quickly without selling your vehicle. Many classic cars are very difficult to replace.
They may also have sentimental value which is difficult to quantify. To make things even more complicated, many classic cars are appreciating.
This means they may be worth more when you repay the loan than when you take it out. Use your best judgement to perform a cost benefit analysis in this situation.
Car Title Loan Costs
Up until this point the only costs we have mentioned are the costs associated with the benefits of getting a title loan. What about the actual cost of the title loans?
This information can be difficult to get, which is exactly why we built our title loan calculator.
The car title loan payment calculator provides real time car title loan cost information 24/7. Use the title loan calculator to get the cost of any title loan amount with various loan terms.
You can even compare different loan terms and payments to find one that makes the most sense for your situation.
Speed – Time to Fund
Car title loans are fast compared to other loans. Instant online and completely online title loans can be funded same day in many cases. This is especially true if you choose direct deposit as a finding method.
Comparing Benefit to Cost
Once you have defined the benefit and have an estimate of the cost, the next step is fairly simple. Just compare the benefit to the cost, and find out which one is greater.
If the benefit is greater than the cost, then the loan makes sense. If the cost is more than the benefit, then you should consider alternatives.
By performing this simple cost benefit analysis you can rule out title loans that cost more than the benefit they provide. This is an easy way to help determine if a title loan is really worth it for your specific situation.
The areas where this is more difficult are those where the benefit is not easy to qualify. Still, in these cases, it does help to quantify the cost and still perform the cost benefit analyses.
It just may not be as accurate and the results will be a bit more subjective. Use your best judgment.
Preparing for a Title Loan
Once you complete the cost benefit analysis, if the benefit outweighs the cost, the next step is preparation. We recommend preparing for all title loans, rather than rushing in to any loan. The right preparation can help you find the best title loan, save time, and save costs.
Online or In-Person
Part of preparation is determining to pursue an in-person or an online title loan. Both of these types of car title loans have pros and cons.
The recent addition of online title loan companies, combined with many searching for virtual options, makes getting an online title loan a much easier endeavor than even just a year ago.
This includes online title loans with no inspection as well as those with no store visit; and even some with no phone calls. It all depends on your specific situation and which option best meets you need.
Finding the Best Online Title Loan
As discussed further on the preparation page, finding the best title loan is the end goal of properly preparing. This can be more difficult than it may seem. There is plenty of misleading information so it is understandable to be confused.
The best title loan takes some time and research to find and varies based on specifics. It is, however, worth the time and effort to make sure you find the best possible title loan for your situation. With the increase in online title loans, finding the best is more important than finding the nearest title loan.