Title Loan Basics: What You Need to Know About Interest Rates

By March 15, 2018Title Loans

When I was a kid and I saw car commercials on TV, I thought that “APR” stood for “Awesomeness Per Ride.” And when I found out that car buyers wanted a lower APR, I thought it just confirmed that adults were boring.

Luckily, I learned a little bit more about loans before I went out shopping for the highest APR I could find. But understanding APR and other interest-related terms can be tricky, so this seems like a good time for a back-to-basics refresher course.

What is Interest?

When you pay back a title loan, there are two parts of each payment that you should know about.

The first is the loan itself, which is called the “principal.” The second is the charge for borrowing the principal, which is called the “interest.”

What is an Interest Rate?

Your interest rate is the amount of the principal you’ll need to pay your lender for borrowing money. Interest rates are usually applied as a percentage. For example, if you take out a $100 loan with 50% interest, you will pay $150 to complete the loan.

According to Investopedia, interest rates can vary depending on factors like:

the amount borrowed
the time the borrower needs to repay the loan
the borrower’s financial history
what the loan is for

What is Annual Percentage Rate?

Interest rates are typically calculated on a yearly basis, which is called the “annual percentage rate” (APR). For example, if your APR is 12%, your interest payment will be 1% per month.

What Interest Rate Should I Look For?

The most important thing to look for in an interest rate is whether or not you can pay it back. If you take out a title loan that charges more interest than you can afford, you will default on the loan and be in worse financial shape than when you started.

For example, some shady title loan offices will charge as much 300% APR, which means you’d have to make your regular payment plus 25% of the principal every month just to meet the conditions of the loan. Loans like that won’t help the borrower — they just help the lender make a quick buck.

We want to help you succeed at California Auto Finance, which is why we provide short-term loans with interest rates and loan durations designed to fit your needs. With California Auto Finance, your APR can be as low as 36%, or just 3% per month.

Interested in learning more about title loan interest rates? Give us a call at (800) 690-6948 or apply for a title loan here.