We’re not a lender, but we do know a lot about the industry and how important it is to plan a budget for your loan – and that doesn’t mean creating an auto title loan amortization schedule. Before we dive into the specifics, we’d like to offer a little background on what exactly a car title loan is and how you should pay it back. Then, we’ll look at the best practices for setting up a budget and why an amortization schedule probably won’t work for your auto title loan.
What is an Auto Title Loan?
An auto title loan is a type of short-term funding. Generally, when you apply for an auto title loan, the provider has you bring your car to an authorized shop to be inspected. Based on your car’s value, your credit, state regulations, and other variables as determined by the loan provider, you’re presented with a loan offer. The loan agreement lists all of the important details, including the loan amount, the loan term, and the fees associated with the loan. Here are a few important generalities to consider as you prepare your loan amortization schedule alternative:
- Expect your loan amount to be about half of the value of your car.
- Your loan term will likely be around 30 days.
- The finance fee for this type of loan is usually around 25-percent of the value of the loan.
The reason they call it an “auto title loan” is because you sign your car title over to the loan provider. That means a couple things. First, it means you are using your car as collateral for the loan. So this is a “secured” loan, as opposed to an “unsecured” loan that doesn’t require any collateral. It also means that if you default on the loan, you lose your car. Fortunately, this doesn’t happen too often. Marta Skiba, a law professor at Vanderbilt Law School, recently did a study on car title loans and discovered that borrowers rarely lose their cars.
What is an Auto Title Loan Amortization Schedule?
An amortization schedule is a way to estimate your loan repayments. It is sometimes referred to as a loan calculator. It is generally used for mortgages and other kinds of loans that have long loan terms.
When using an amortization schedule calculator, you usually enter your loan amount, loan term, and interest rate. The calculator then estimates your monthly payments.
Hopefully you won’t need an amortization schedule with an auto title loan. This is because your loan term will likely be for just one month. So, ideally, you would pay off the loan within 30 days and get your title back. No need for a monthly payment calculator.
A Better Budget for Car Title Loans
So if the amortization schedule doesn’t make sense for auto title loans, what should you use to plan your budget?
First, remember that this is a “short” term loan. All too often, auto title loan users are overly optimistic about how quickly they will be able to pay off the loan. Instead of paying it off in a month, they roll over their loan, which ends up costing them a lot more money. To avoid those extra fees, plan out how to pay off the loan within your original loan term.
Remember, people use an amortization schedule to figure out their monthly payments and plan their budget from there. If your auto title loan has a 30 day loan term, then you’ll know your monthly payment amount from the start. Hopefully, you’ll pay off the loan within that loan term without having to roll over.
Not What You Expected?
Some people are surprised to learn that they are expected to pay off their entire car title loan and fees within a short loan term. They ask, “How am I supposed to put together that much money within 30 days?”
This is a warning flag. If you find yourself in this situation, an auto title loan might not be the best option for you. This type of loan works best for people who need to fill a pay flow gap, know that money is on its way, and are confident that they will be able to pay off the loan in time.
If you’re not careful (or if you’re overly optimistic) you might roll over on the loan multiple times and end up paying more in fees than you had originally expected.
Where to Find an Auto Title Loan?
If you’re ready to take out your auto title loan, we can help you with your loan request. Head over to our loan request form to get started. We’ll ask you for a little information and then try to match you with a lender in your area.
If you still think an auto title loan amortization schedule is right for you, we’d suggest looking into funding that offer longer loan terms. You might be better served by a similar type of secured loan, except with an installment plan.