Title loans are not cheap. Although they are quick to approve and require very few qualifications, interest rates can often rise into the triple digits. You should also be mindful of fees when considering your options.
What interest rate can I expect for a car-title loan?
The interest rate on a title loan is typically over 100 percent. However, title loans and other types short-term loans will typically have interest rates that exceed 100%. This is due to the fact that your loan amount, term, and where you live all affect your rate, rather than your personal credit rating. Your rate can be affected by these factors. For more information check instant online title loan paydaychampion.
There are no state limits on the interest rates on title loans
Certain states and cities have limits on how much a lender may charge for a Title Loan. This could affect your interest rates.
California has a cap on interest rates at 3% per calendar month. That’s 36% annual interest. Arizona caps interest rates at 10%-17% per month, depending upon how much you borrow. It’s approximately 121%-206% annually.
Title loan APRs vs. interest rates
In reality, the interest rate is not what you should be considering when weighing the costs of a title loans. Instead, look at the annual percentage rate (or APR) for your title loan.
The APR, which is expressed in percentages, shows how much you’d have to pay in interest and fees over the course of a year. It is easier to compare loans with similar terms and amounts by looking at APR, rather than the interest rates.
A typical APR for a title loan is 300% According to the Federal Trade Commission.
Consider additional costs for title loans
Some title loan providers may charge additional fees for obtaining and repaying the loan.
- Lien filing fees. The cost of placing a lien on your vehicle might be covered by your lender.
- Late payment fees: Late payments can result in a penalty equal to 5% of the amount due. This fee varies from lender to lender.
- Nonsufficient funds fees. There are many lenders that charge fees if your bank transfer or check bounces. These fees for canceled checks or returned payments are often the same as the late fee.
- Collection fees. If your loan is not paid in full and your car is repossessed by the lender, you might be charged a fee to collect your vehicle. This fee is added to your loan amount and covers the cost of selling your car.
Some lenders do not advertise rates or fees online. For accurate information, it is best to visit the storefront or call ahead to find out what costs can be expected.
How rates work for installment title loans vs. single-payment loans
Two types of title loans are available: single-payment or installment.
They are different
A single-payment title loan can be repaid all at once, usually in 30 days. They are often charged a flat fee per $100 borrowed.
Installment loans can be repaid over a period of 3 months to 3 years. They are typically charged interest and fees as well as a lower APR than single-payment titles loans.
How type influences the cost
An installment title loan with a low APR could end up being more expensive than a single-payment title loan, because there’s more time for interest to add up.
Let’s see how an $1,000 single-payment title loans and an $8,000 installment title loan have compared over a four-month period.
|A single-payment title loan||Installment loan title|
|Interest and fees||$583||$694|
|Cost per month||$1,583||$423|
The overall cost of an installment title loan is higher than the total. The installment title loan is more affordable in the immediate term. This will lower the likelihood that you will have to rollover or refinance your loan.
Cost of rolling over a Title Loan
You can roll over a title loans, also known as renewing and refinancing. This is when you get a new loan to extend your time for it to be paid off. It is common with single-payment titles loans. Every time you renew, the rates and fees you paid for the original loan will be charged to you again. Some states have restrictions on how many times you may roll over your loan.
Only 12.5% borrowersA Consumer Financial Protection Bureau study found that borrowers can pay off their loans without rolling them over.Nearly 50% of borrowersRenew their loan at least 10 more times
The increased costs make it more difficult for debt to be paid off. This could explain whyTitle loans make up around 20%End in repossession
Is a Title Loan right for me?
While a title loan can be expensive but can help in certain situations like:
- You need cash fast. Title loans can be approved in under 30 minutes. Payday loans, which are typically smaller and come with higher APRs, are the only alternative type of loan that offers such quick turnaround.
- Poor credit is a sign of poor credit. All credit types are accepted by title loan providers. Some lenders may not check your credit history when you apply. However, you might want to reconsider. No-credit-check Loans.
- You don’t have one. Some title lenders will work with borrowers without a bank account. But not all.
- You need a longer-term loan. The amount of your vehicle and whereabouts can affect the cost of your title loan.
The title loan process is costly and can lead to you losing your car or falling into debt. Before you apply for a loan, you should consider how much you can borrow and whether an installment loan or a one-payment loan would be more suitable.
To learn more about how these products work, read our comprehensive guide to title loans.