Title Installment Loans VS. Title Loans

There are huge differences between a title loan and a title installment loan. Do you know what they are? On the surface there’s not much difference in the names, but don’t let that fool you into making a bad financial decision, because under the hood of one of these loan types lays a complete disaster for your finances. Read on if you’re into saving money.  

The basics. A title loan and a title installment loan both use your vehicle title for collateral to secure the loan. Your title gets sent into the Missouri department of revenue to place a lien on the vehicle. The title will then be returned to the lender with their name in the lien holders spot on the front of the title. When your loan is paid in full, the lender returns your vehicle title along with a lien release to you. The lien release is your proof that the loan has been paid in full. You will want to keep these two items together. I would staple them together and put them in a safe place. Like a fireproof safe, file box or some other fireproof enclosure. Or, if you would like, take them to the DMV and you can have the lender’s name removed. There is usually a fee for this.  

Now, let’s get underneath the hood and check out what makes these two loans tick, and why you want to stay away from a regular title loan. The “title loan” is a loan type that is usually set up much like a payday loan. It usually carries a very high “triple digit” interest rate. The loan term is typically 30 to 45 days. Payoff is with one payment at the end of the term. This is where these types of loans can get you caught in a debt trap. If you cannot pay off the title loan, then you can usually renew it by paying the interest and rolling over the principal amount for another 30 to 45 days. Without proper and painstaking money management, this can create a very ruthless cycle of debt for you.  

For our scenario, we have borrowed $1,000.00 with an APR (Annual Percentage Rate) of 303%. This is an actual rate charged by a Missouri title lender here in town. The entire principal and interest due in 30 days would be approximately $1,249.00 plus any other fees. If you couldn’t pay this amount, then you would need to renew the loan principal by paying the interest, plus whatever other fees that may be due. You could repeat this cycle every month. If you did this for a whole year, 12 renewals, you would pay somewhere in the neighborhood of $3,030.00 in interest alone. Keep in mind that these figures are just theoretical calculations to describe the interest amount on a $1,000.00 loan at a 303% Annual Percentage Rate. Loan amounts, interest rates, fees and other associated costs can vary widely from lender to lender. I don’t make any claims as to knowing exactly how other lenders operate, practice, or their rates. I do, however, have over 20 years of experience in this lending space.  

Ok, you have the summary of a title loan and how it works. Let’s look at the title installment loan and how it differs. This loan type will use your vehicle title as well. The loan structure and payments are much different than a title loan. For starters the interest rate is far lower than triple digit rates. Since rates vary from lender to lender, be sure to read and understand what interest rate the lender is charging you. If you don’t understand, ask them. They are required by law to answer. Secondly, the loan term can vary from 4 months to 4 years or more depending on how long you want your loan term. This gives you ample time to pay your loan in equal installment payments over time instead of one lump sum payment like the title loan. Keep in mind that the longer the term (lower payment), the more interest you will pay. The shorter the term (higher payment), the less interest you will pay. The only difference between the two payments is the amount of principal that is being applied to your principal balance. Consequently, the longer the term, the less principal applied in each payment. The shorter term, the more principal per payment.  

For this title installment loan scenario, I will use an APR rate of 89%. This rate is common in our institution for this type of loan. Ok, we have borrowed $1020.00 at the 89% rate for a 1-year term, with 12 monthly installment payments. Each monthly payment would be approximately $132.00 per month. Total amount of interest paid would be approximately $556.00. The total of payments at the end of the one-year term would be $1576.00. Far less than $3030.00. The difference is huge, isn’t it? I mean, it’s a no brainer. Again, keep in mind that this is a theoretical equation for demonstration purposes only in this article, but the figures are close based on my considerable years of experience. I did use rounding to the nearest dollar for simplicity.  

Let me give you the final break down and comparison in an easy chart: 

I hope this helps you understand the differences between the two types of loans. It can be confusing and frustrating reading all the fine print. Most of all, it could mean a big difference in your financial situation, cash flow and interest paid. Should you need some numbers ran on a particular loan scenario, give me a call at 417-725-5010 or email me at manager@moquickloans.com. I’m here to help. You can also use online calculators. Here is one I use on a regular basis. https://www.calculator.net/ . And, as always, that’s the bottom line.