Weighing Down On The Issue Of Interest Rates For Car Title LoansFast Action Finance
Lenders offer high interest rates on car title loans in order to shelter themselves from the high risks associated with them. A lot of risk is involved in lending money, the most common being the likelihood that the borrower will default on payment. This is the sole reason why borrowers have to provide their car titles as security. Interest rates also cater for the cost of preparing the loan and providing the money to the borrower.
Car title loan APR
Most car title loans are offered at extremely high APRs (Annual Percentage Rates); usually in the tune of between 300% and 500%. From these figures, the monthly interest rate ranges between 25% and 40%. By all means these figures are relatively high as compared to the annual two-digit rates offered for long-term loan in bank. This is because most borrowers are in the low income bracket, and they are considered to have a higher risk of failing to repay in time.
The high APRs are also the cost of convenience offered by car title loans. Borrowers can request loans at any time and get their requests approved in an hour! The procedures associated with obtaining the money are minimal, and the paperwork is very little. The convenience of having to get quick cash whenever you need it plays a huge role in raising the interest rates.
Determination of interest rates
• Increase of demand
In determining the interest rates of title loans, the lenders have to consider several factors. A higher demand for these loans often leads to an increase in the interest rates. This is because the lender is giving out a lot of money to different borrowers, hence the risk of default will mean more losses for him than for the borrowers. Furthermore, the lender may also have to look for alternative funding options, and he is bound to transfer the associated fees and charges to the borrower in form of interest rates.
Higher inflation rates in the market means that the interest rates charged on loans are also high. To lenders, inflation is a depressing phenomenon as it reduces the value of the money that borrowers will repay in the future. Therefore, they have to transfer the differential costs to the borrower so that they can maintain their profit margins.
The government plays a huge role in making and implementing policies used in the borrowing and lending of loans. The laws and regulations that allow for car title loans also gives lenders discretion on the amount of interest rates they can charge. The costs associated with licensing and tax are also put into consideration when determining the overall interest rate.
The state of the economy has a huge impact on the decisions of the Government, which in turn affects lenders who offer short term loans. A faster economy means that the authorities have to increase the short term rates, and this makes it more expensive to borrow such loans. Such high interest rates discourage people from borrowing, and the economy eventually slows down.
• Payment of interest rates
This is usually done at the same time of paying the principal amount of the loan. Basically, the interest rate is calculated as a percentage of the principal rate, and the final payment made involves both the principal amount and the interest charged on it. Lenders usually rely on such combined payments to make their profits on a monthly basis.
Shop around to find the best interest rates
Many lenders provide loans to their borrowers with very high and sometimes unreasonable interest rates. Sometimes, the thrill of having to reap a lot of money from such a short term investment may be taken too seriously. Make sure that you look around for an honest lender who is looking to earn an honest profit from the interest rate. Therefore, you will need to compare notes of different lenders before you settle on the most affordable one.
Get expert guidance
Look for a financial expert who can be able to guide you through the whole process of borrowing a car title loan. Use them to gain information on the basics of the loan, and the various charges and fees involved to see it to fruition. Inquire about the interest rates and ask them to break them down in details so that you can be able to understand.
They can also be helpful in going through the legal documentation you make with your lender prior to obtaining the loan. Sometimes, the interest calculations are unclear and you may fail to understand them properly, hence landing you in problems that you could have easily avoided. This will help you plan ahead on how to repay your loan and prevent your lender from repossessing your asset.
At the end of the day, you want to ensure that you get quick cash using a facility that you can easily repay without fail.