What a busy week this has been. My parents are still in town and we had to take them to the local strawberry festival this morning. I have several emails to catch up on in the upcoming weeks, but not this weekend. What I do have is an article I came across while shopping for a new credit card online. There is another blogger out there who has a site very similar to mine, The Best Title Loans. He posted a great article on whether a title loan is a rip-off. I think it sheds some light on an industry that has been much maligned over the years, so give it a read, and we’ll see you next week.
Q. I read somewhere that the interest rates on a title loan can be well over 200% in some places, and that a title loan is a rip-off. You seem to think you know a thing or two about title loans, so what do you think? Is a title loan a rip-off?
A. Let’s give this question some perspective. First of all, let’s define the percentage rate on a title loan compared to the length of the loan. Let’s compare it to a credit card, at 29.99% APR, which is what many cards went to a few months back. That 29.99% is the APR, which is the annual percentage rate. That means you divide the 29.99% by 12 months, and you have the percentage of 2.5 % for the monthly term. A title loan is different than a credit card in the fact that a title loan is for a set period of time, usually about one month, unless you renew it. When people renew the title loan, otherwise known as “rolling it over“, they extend the title loan another 4 weeks. This is when people can get in to trouble, but we’ll get to that later. On average, the monthly interest rate on a title loan is about 9%. Even at the extreme rate of 200% APR, the interest rate for a one month title loan works out to about just under 17%. That means if you got a $1000 title loan, when the loan was due you would only owe $1170. Sound reasonable? It really is.
A title loan company only has a small amount of time to make their money back, unlike a credit card which will string a customer along for up to 30 years of minimum monthly payments. Ideally, a title loan company makes their money in a short period of time, and the customer leaves happy. A happy, satisfied customer is a return customer, and the best type of advertising around. The horror stories you hear about title loans stem from mostly two things: unscrupulous title loan lenders and customers who get a title loan without the ability to repay it in a timely manner. That’s why is is so important to research your decision to get a title loan and make sure you are dealing with a reputable lender. It is also IMPERATIVE you have a plan to pay back your title loan. Would you set out on a journey with no idea of how to get where you are going? Without a plan to get home? Lastly, a title loan is a short-term emergency loan, and it is easy to get. Add in the convenience factor, and I think the myth that title loans are a rip-off seems a little far fetched.
DISCLOSURE OF MATERIAL CONNECTION: I have a direct relationship with a brand, topic, or product that is mentioned herein and may have received compensation, either directly or indirectly, for the opinions expressed.
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