People get loans for a variety of reasons. For example, student loans help pay for college, car loans help pay for new vehicles, and mortgage loans are obtained for purchasing homes. These loans are long-term loans that are large amounts and paid back over several years. However, other loans are short-term to cover emergency expenses that come up, such as medical needs or home emergency repair. These loans are smaller amounts and paid back in weeks or months. For such situations, title loans are one option.

Title Loans in Gastonia NC

Title loans are called such because they use the title of a person’s car as collateral. Someone seeking such a loan has to own their vehicle fully – no leasing or loan payments. Title loans have short-term payback periods, as little as a month in most cases. The length of the loan period can heavily affect interest rate calculations, which are more complex than many people realize.

Interest Rates

The length of a title loan determines the annual percentage yield or APR meaning the longer the loan is unpaid, the higher the interest amount. This may sound standard for most loans, but title loans can have very high interest rates, so paying sooner is best. The interest rate can be regulated, so it varies from state to state and company to company but is generally much higher than a bank loan or loan meant to be paid over several years rather than months.

Increasing Fees

Paying off a title loan as soon as possible is vital to avoid paying interest and fees that could quickly equal the lent amount. If the lendee keeps extending the payback period, they can get caught in a debt spiral. A debt spiral happens when the debt increases faster than the ability to pay it back. This result is why these loans should be approached with caution.

Interest Calculation

Title loan calculations are similar to other short-term loans, such as payday loans. In general, title loans charge about 25% interest for a 30-day loan. (By contrast, personal loan rates start at 4.99% ANNUALLY.) The bottom line can increase quickly because the lender can add additional charges, including lien fees, origination fees, key fees, processing fees, and document fees. Before signing for one of these loans, read all the paperwork and understand the terms and fees.