Taking out a title loan might seem simple, but there are a lot of layers that need to be peeled back to understand the depth of it. Sure, it grants you quick cash while holding your vehicle as collateral, but it is crucial to be aware of the terminology used within the trade. This helps you stay informed about the financial decisions you’re making.
Moreover, knowing title loan-specific terms connects you with your lender, allowing you to distinguish genuine lenders from scammers. That is why we are here to boost your loan glossary. Take a look below to see some of the most common and popular terms used in the title loan industry.
- Annual Percentage Rate (APR)
APR is the total cost of your loan, which is calculated on a yearly basis. It includes any additional fees or interest that there may be so that the total cost is rounded off in the form of a percentage.
- Balloon Payment
This is a payment method that involves paying at the end of the loan term in a large amount. While you still have to pay off the loan in smaller chunks throughout the repayment timeline, a balloon payment ends with the remainder of the money being paid altogether.
Collateral is the item or asset that is used as a stand-in to secure the loan. For auto title loans, the collateral is typically your car, motorcycle, truck, etc. This also means that if you fail to pay back the borrowed money, the lender has the right to repossess your vehicle.
- Debt Avalanche
Used specifically for people who acquire too many loans, debt avalanche is when the borrower pays off the loan with the highest interest rate first before moving on to the loan with the second highest interest rate, and so on.
When you are unable to repay the loan within the allocated time, or you end up missing payments entirely, you could end up defaulting. This is when the lender takes ownership of the collateral – your car.
A lien is a legal claim that gives the lender rights over the borrower’s assets. For instance, for a title loan lien, the lender will legally claim temporary ownership of the vehicle until the loan is repaid.
- Loan Term
This is the time period within which the borrower has to pay the lender back in full amount. Depending on what was decided, the term could be as long as a year, a few months, or weeks.
- Pay to Pay
While this is not as common, pay-to-pay is yet another payment method where the lender charges the borrower extra money to process their payments.
- Prepayment Penalty
This is a fee some lenders charge if a borrower pays off the loan early. This can occur if the borrower refinances the title loan or pays off the loan before the term ends. Make sure to ask your lender about prepayment penalties before signing an agreement.
A principal loan is the original amount of money that the borrower loaned, minus additional fees or interest rates.
The inability to pay back the borrowed amount in full in due time leads to repossession, where the lender takes complete ownership of the vehicle. They have the right then to use it or sell it off to get back the money they lent.
A title is the legal ownership of your vehicle. The papers, or documents, are temporarily given to the lender, allowing them to hold over it. If you pay back the loan in time, you can get the title of your car back.
Looking for Reliable Title Loan Lenders?
Advantage Finance LLC provides auto title loans with great advantages. That, too, for multiple vehicles. No matter what troubles you may be facing, you can contact us at (281) 410-5337 to get in touch with our representative. For an in-person meeting, you can also drop by our office located at 616 FM 1960 West #680 Houston, TX 77090, near the 45 and FM 1960 in the Chase Bank Building.