Car title loans are mean to be short term solutions to short term funding issues. They are secured loans that allow you to borrow money, quickly, using the equity in your vehicle as collateral for the loan.
Title loans are often described as very short term loans with repayment periods of 30 days. While this may be true in some states, there are also what are called “Monthly Installment Title Loans”.
These types of car title loans have longer repayment periods or terms; measured in months. This makes them very different from a title loan with one single payment.
The purpose of a monthly installment loan is to make it easier to repay by breaking the loan up into manageable monthly payments. This is instead of one lump sum due in 30 days.
So first, let’s take a look at single payment title loans and quickly examine why they can be difficult to repay.
Single Payment Title Loans – Difficulties
The fact is that single payment title loans that are due in full in 30 days can be, and often are, very difficult to repay. This is especially true if the loan is for more than a few hundred dollars.
Title loans are often for more than a few hundred dollars making many of these loans challenging for borrowers to repay. This can lead to rolling over the loan several times which we’ll cover shortly.
The fact that you have to come up with the full loan amount, plus interest and fees, in just 30 days from needing the loan in the first place, can be a challenge. To illustrate this, let’s take a look at an example:
In the example shown above, the amount borrowed is $1,000.00. The amount due in 30 days is $1,200.00 plus fees. This can be difficult to come up with, especially given the fact that only 30 days has past. Perhaps:
- You were unable to save the full amount in just 30 days.
- Your pay went to cover recurring expenses like rent and utilities.
In the case where you can’t repay the entire amount, the lender may allow you to pay interest and fees and “roll over” the $1,000.00 for another 30 days.
Roll Over Cost
Many single payment title loans will allow what is called a title loan roll over if you cannot make the full payment in just 30 days.
We’ve already mentioned how challenging this can be. Rolling over the loan only delays this challenge for another 30 days.
What makes roll overs even worse is that most of the time the only payment required is interest and fees, so the total principal balance is not reduced. This is true regardless of how many times you roll over the loan.
Roll Overs can End Poorly
Roll overs don’t go on forever and must end at some point. Most states have a limit on the number of times you can roll over a loan. Should you fail to repay the loan in full during your last roll over then the lender may repossess the vehicle.
In this case you may have paid a significant amount of money in interest and fees only to lose your vehicle in the end which can be devastating. A monthly installment loan can help avoid these situations if entered into with preparation.
Monthly Installment Loans
Monthly installment title loans generally make it easier to repay the loan. These loans are amortized over a certain period. This means a portion of the payment is used to pay the accrued interest, with the remaining going towards the principal balance. To see what this looks like in a payment schedule use the title loan calculator.
Principal is Reduced Each Month
With monthly installment loans the loan is amortized over the loan period. By amortizing the loan a portion of each monthly payment is applied to the principal loan amount.
This means the balance owed is decreasing each month. With roll overs, the principal remains the same. This is one of the major benefits of monthly installment loans.
By reducing the principal each month, paying off the loan is much easier. When the principal balance remains the same, so does the interest accruing each day.
In these cases you can end up paying a significant amount to the lender and still owing the amount you borrowed. This can be very frustrated. It’s as if you are making no progress.
Monthly installment loans, on the other hand, show progress each time a payment is made on time.
Do you need a Credit Check?
A common question is do you need a credit check for a monthly installment title loan? The answer is no, the title loan is secured by the vehicle, so the process for getting the loan is essentially the same.
A no credit check online title loan is still an option regardless of whether or not it has monthly installment.
It is important to note that there is a difference between a soft credit inquiry and a credit check that shows on your credit report.
Title Loans are not Long Term Loans
It is important to note that title loans are not meant to be long term loans. Some online title loan companies are making title loans that are several years in length. This is not a good idea with a high interest loan.
Amortizing a high interest loan for more than a year can cause the interest costs to get very excessive. Extend a title loan longer than two years and the costs increase exponentially.
What’s worse, the monthly payment decreases minimally, making there no real benefit to making a long term title loan. Find out the true cost of extending a title loan.
Online Monthly Installment Title Loans
Online title loans are available in many states. This includes monthly installment loans. In fact, many online title loans are amortized and have monthly payments.
Just make sure to perform the necessary preparation steps and find the best online title loan and ensure you have all the documents and information ready. This helps ensure the loan is funded fast.
Conclusion
Monthly installment loans offer some additionally flexibility for repaying a title loan that can be very beneficial if entered into carefully. just like any other title loan make sure to read the loan agreement in full before signing.
Make sure to understand the total loan costs as well as any interest and fees associated with the loan. For monthly installment loans it is often a good idea to align your due date with your pay period. This can make it easier to help ensure you make your payment on time.