Common Car Title Loan Terms

Financial education is important to LoanMart since financial terms and rules can be confusing at times, especially to the average consumer who doesn’t deal with these terms on a daily basis. In line with LoanMart’s education mission, this blog intends to explain frequently used title loan terms to ensure prospective customers understand these terms and can make sound financial decisions that will help their finances in the long run.

What Do I Need to Know About Title Loan Interest Rates?

Having a basic understanding of the types of interest and interest rates will help you when comparing your loan options and deciding if taking out a loan is in your best interest.

Interest is simply the cost you pay for borrowing money. Typically you only pay interest when borrowing from a financial institution, such as a bank, credit union or lending company. However, if you borrow money from a friend or family member, they may just charge you interest as well.

What Are the Different Types of Interest?

Simple Interest

Simple interest is calculated based on the principal amount of the loan. It is paid over the course of the loan, and makes up a portion of each loan payment that you make.

• Simple interest is calculated by the following equation:

Principal x interest rate x time= interest

Let’s say you take out a title loan for $1,500, with a rate of 25% (0.25) for 1 year, the total interest you would pay is $1,500 x 0.25 x 1= $375.

Compound Interest

Compound interest is calculated based on the principal and any interest that has accrued or been “earned” by the lender. Meaning that, you have to calculate the interest from each time period, and then add it to the balance before adding it to the next payment.

• Compound interest is calculated by the following equation:

            Principal x interest rate= interest earned, time period 1

            (Principal + interest earned) x interest rate= interest earned, time period 2

            (Principal + interest earned) x interest rate= interest earned, time period 3

…and so on.

Let’s say you borrow $1,250 at a rate of 25% for a term of 2 years. At the end of the 1^st year you will owe $1,250 x 0.25= $312.50 in interest. In year 2, assuming that your principal balance has not changed, you will owe ($1,250 + $312.50) x 0.25= $390.63 in interest. Bringing the total interest for 2 years is $703.13.

Be aware that not all compound interest loans compound annually, some compound on a month to month basis, or even daily basis. Check with your lender to see how their interest compounds, and adjust your math accordingly.

Fixed Interest Rate

A fixed interest rate stays the exact same throughout the course of the loan term. This rate is determined at the time of signing your loan agreement, and allows the borrower to know the exact amount that needs to be paid each month, because the rate will not change. Fixed interest rates are typically seen with loans for large purchases like home mortgages, with car loans and title loans, or with unsecured personal loans.

Variable Interest Rate

Variable interest rates, you guessed it, vary over time. The variation is dependent on the current value of an underlying reference rate, sometimes also known as a benchmark. An example of such a benchmark is the Secured Overnight Financing Rate, also known as SOFR. These benchmark rates can change daily, and can also stay elevated for extended periods of time, depending on the economy. If the variable interest rate gets really high, you can find yourself in a situation where you are having a difficult time with repayment of a variable interest rate credit.

Prime Interest Rate

Prime interest rates are short term interest rates, used by commercial banking institutions for their very best customers. Prime rates are usually for commercial businesses, but can also be applied to mortgage loans, small business loans, and even personal loans.

What is an Amortized Loan?

An amortized loan means a borrower has a set schedule of payments over time. These payments include both the principle and interest amounts. The amount that makes up the principle part of the payment is the money that was originally borrowed. The interest portion is the amount that the lender receives as compensation for providing the credit.

Amortized title loans on cars work well if someone wants to take a loan and have an exact schedule of when payments need to be made. The payments that a borrower needs to make will also be in the same amount every time and work to slowly pay off the entire loan plus interest.

What is the Average Loan Rate?

When you have a financial emergency, the last thing you want to do is waste precious time and effort trying to find funding. However, it can be a good use of your time to shop around for multiple loan options to ensure you get the best deal possible, which includes a competitive interest rate. While there are other factors to consider such as funding options, payment options and an easy process, you should prepare yourself to compare interest rates of any loan offers you receive when picking the right lender for your needs.

Average Title Loan Rates

The average title loan interest rate varies depending on the lender you work with and the state you live in. Some states limit interest rates for certain lending licenses that title lenders may use, or depending on how much you borrow or for how long you intend to borrow. Official data for the average title loan interest rate is only available in very few states, since lenders typically don’t need to report interest rate data to authorities. One exception is Texas, where according to the Office of Consumer Credit Commissioner, the average title loan interest rate is around 200%.

While the average interest rate can be a factor to consider while you evaluate your loan options, it’s much more important to compare your actual options – which can have rates significantly above or below the average!

Understand the Factors that Affect Interest Rates

LoanMart is committed to educating consumers on borrowing options that provide relief when money gets tight. With our simple application process and friendly customer service, customers can have a car title loan in a relatively short period of time. The money from a car title loan can be used for any personal or household purpose, and borrowers can maintain access to the car as they pay the loan back.

Many consumers borrow money without a basic understanding of interest rates and how they work. Most borrowed money comes with some type of interest, and the specifics may be listed in the fine print of the documents that must be signed to complete the loan.

Factors Influencing Interest Rates

While every situation is different and your rate may depend largely on the type of loan you are obtaining, there are a few personal and financial factors that can influence the interest rate.

• Credit Score 
  The likelihood of you repaying the loan may change your interest rate. We take pride in working with those with poor credit history that may be denied a loan from a bank. Risks are determined by your previous history obtained from your credit score.
• Payment history
  If previous positive payment history is available for an applicant, the applicant may qualify for a lower interest rate.

Common Terms of a Car Title Loan

We believe in helping our customers as much as possible. That’s why we try to work with people who have poor credit or who were refused a loan from a traditional institution, and why we strive to make communicating with us as easy and convenient as possible by providing options to give us a call by phone.

Part of what we want to do in order to help our customers is being open and honest about what getting a car title loan online looks like at every step of the process. From checking to see if a person may qualify – which is free to do – to ensuring they understand their loan terms, we want to make sure things are easy, simple, and clear.

Many people want to know what kind of common terms are included in a car title loan online and what their responsibilities will look like when they apply for this type of loan. To help our customers better understand what to expect, we’ve outlined some common terms borrowers will be responsible for:

Payment period: This is the time over which someone has to pay back their loan. With title loans serviced by LoanMart, there is no fee if a borrower chooses to repay the loan early, or make extra payments to pay the loan back faster. However, there may be penalties for making late payments.

Payment methods: We want to make it easy for borrowers, so we offer several ways for customers to make payments, including paying by phone, and paying online.

Interest charges: Lenders charge a fee in order to let customers borrow money, known as interest. This is the charge that must be repaid in addition to the principal (the original amount of money borrowed).

Remember, these are just a few of the common terms that may be included in a car title loan agreement and they vary from lender to lender. A borrower’s responsibilities will depend on the specific terms of their particular loan, but they generally include making the payments on-time and keeping the vehicle in proper, working condition.

Our customer service representatives are available if anyone needs assistance understanding the terms of a car title loan. We’re happy to help and will be glad to explain our terms in more detail.

Getting Competitive Rates with Title Loans

Car title loans are different from a lot of other kinds of personal loans because they are secured loans. This means that the money is borrowed against collateral. Car title loans use the equity in the borrower’s vehicle as collateral for the loan. This secured aspect of car title loans makes them easier to qualify for among subprime credit individuals because the collateral decreases the level of risk.

Since your credit is less important to the qualifying process with a title loan, you may obtain far more competitive interest rates with title loans serviced by LoanMart!

Is Car Title Loan Interest Tax Deductible?

While mortgage loans or commercial loans may offer benefits such as tax-deductible interest, personal loans do not have that benefit. The interest on a car title loan is generally not tax deductible; however, you can pay off your loan FAST which can be a much better benefit. The faster you pay off your car title loan, the less you will pay in interest.

When you get a car title loan, we will work with you to come up with a payment plan using our convenient terms and competitive rates. This makes your payment plan benefit YOU, so you can pay off your car title loan balance and not accumulate a ton of interest fees.

Overall, paying off your title loan faster can play more to your advantage than receiving tax deductions on your interest rates, which are already competitive to begin with.

Ways to Pay off Your Car Title Loan Faster

If you want to avoid paying more money in interest, the most efficient method is to pay off your car title loan balance as quickly as possible. Here are a few tips on how you can pay off your title loan faster:

• Make the most of your installments – If you are able, make larger payments on your car title loan than is required. This will make the total balance of your car title loan decrease, so you will pay less money in interest in the long run.
• Get a second job – Use the money from a second job to pay off your title loan. Getting a second job on the weekends or an internet job that you can do at home will give you some financial wiggle room in your budget. That way you can afford to make larger payments without taking too much money away from your regular paycheck.
• Sign up for automatic payments – Never miss a monthly installment on your car title loan when you sign up for automatic payments. Accidentally missing a payment makes your total balance remain higher for longer, making you pay more in interest fees. Signing up for automatic payments eliminates that potential problem!

Tips for Avoiding Debt by Interest Rates

There are different ways to make sure that the interest rate doesn’t hinder your ability to pay back your loan:

• Budget your time and your money. Planning where your money goes in advance helps in being able to plan for future payments. Being able to see where your money is going can also help you build a better financial sate for the future.
• Meeting your monthly payment amounts and overpaying can help you in the long run. Making more than the minimum payments allows you to clear your car title sooner
• There’s a convenient way for you to make payments, wherever you are. You can make payments:
  • Online
  • By Mail
  • By calling 855-422-7412
  • Using the Mobile App
• Try living a little beneath your means. Spending less on your daily expenses means you can use more to pay off your loan faster. The faster you settle your car title loan, the sooner you can get back on track. Getting used to a frugal lifestyle can also prepare you for future savings and being in a better financial state.

What Benefits Do Title Loans Come with?

Title loans are a secure loan option that come with incredible benefits that are hard to find with any other loan option. But aside from offering some of the lowest title loan rates, what other benefits could an eligible borrower expect to receive?

Besides some of the lowest title loan rates, take a look at some of other benefits you could potentially receive with a title loan:

Low Monthly Payments

With a title loan, you may look forward to low monthly payments! There’s no need for borrowers to worry about struggling to meet their title loan payments!

Long Repayment Terms

If you are worried about struggling to pay back your loan within a short span of time, know that title loans could offer you more time for repayment if that is what you need!

Fast Inquiry Process

Title loans are convenient for individuals that need quick emergency cash because the inquiry process is usually fast. Inquiring for a title loan may take only a few minutes and depending on how quickly a person can submit their documents, it’s entirely possible for a qualified borrower to receive approval the same day.³

Flexible Qualification Requirements

Title loans were designed to help individuals who need emergency cash–period. Despite having low or unestablished credit, a person could still qualify for title loan funding!¹ This type of flexibility is hard to come by with other loan options.

Are you ready to consider a title loan with your newfound understanding of title loan interest rates? Apply for an auto title loan serviced by LoanMart with competitive interest rates and flexible approval terms¹!