As an industry leader in our market, we feel compelled to ensure that our consumers are educated about their title pawn contract and informed about strategies to best repay their obligation. Unfortunately, while we make every effort to explain this process in a clear and concise manner, we know that not all title loan companies do this. Further, many people tend to be overly optimistic about their ability to quickly repay loans. In this article, we’ll examine a few ways to responsibly pay back a title loan, hopefully saving you money along the way.
A paper published recently in the University of Illinois Law Review examined the behavior patterns of typical title pawn borrowers and concluded that many consumers expect to pay the loan back sooner than they’re capable of. They go into many reasons, from behavior to socioeconomics, but the gist of it is that being informed and having reasonable expectations is the best way to save money repaying your pawn. So that begs the question, can you really repay your entire loan next month? If you can, great! If you think you may not be able to, let’s look at a few alternatives.
Your First Choice, should you be unable to repay your pawn in full next month, is the option to pay the minimum required payment. This varies depending on the title loan company you’re with, though with us you can pay as little as the interest on your loan. Doing this will only pay for the time you used to borrow the money, and your remaining balance will not go down. You will essentially re-borrow that money for another 30 days, and you’ll be faced with the same decision again next month.
Paying just the minimum should be reserved for situations where you absolutely cannot afford to pay anything extra, and in doing so know that you will not have made progress on repaying your loan. If you pay even a few dollars over your minimum payment, not only do you pay your balance down and make some progress, but you also lower your interest for the next and all future payments, as you’re only ever charged interest based on your current balance.
Situations where it may be acceptable to make just the minimum payment:
Title pawns, especially in Georgia, are 30 day loans that can be extended for additional 30 day periods until you’re able to pay them off, assuming both you and the lender wish to continue doing business together. What this means is that no title pawn lender can give you a monthly repayment plan. What they can give you, or you may be able to calculate on your own, is a hypothetical pawn charge calculator (sometimes called a voluntary pawn payback guide). This would help you to know that if you made a certain payment amount over a certain number of months, you would fully repay your loan. For example, a $500 title loan at 12.5% monthly interest would cost you $500 + $62.50 = $562.50 in total the following month. This is just an arbitrary number, of course our rates are often lower, though most competitors charge up to 25% monthly. Doing the math, you could pay $123.33 per month for 6 months to fully repay the loan. Again, this is not something you can agree to in a contract with a title loan company, because we can only give you loans on a month to month basis, but it would work out this way if you made those payments.
The best investment you can probably make is paying down the balance on you title loan. Your 401K, your mortgage payment, and your credit card all likely have lower interest rates. If you had an extra $10, putting it towards your title pawn will give you the best return on investment. If for some reason you’re tight on money because you paid too much on your title pawn, most likely you’ll be able to borrow that back if you need to. Of course, check with your lender to be sure.
We hope you found our advice helpful. We’re proud that so many First Choice customers get their title back, and we think that has a lot to do not only with our low interest rates, but also because we take the time to explain how the lending process works and how to manage your payments effectively. If you have any questions, please don’t hesitate to browse our locations and call your local branch manager.