A Mom’s Guide to Understanding Your Loan’s Terms

    We worked in collaboration with Starfish Lending on this Sponsored Post to bring you this valuable information about car loans, because let's face it... we are used to signing permission slips, field trip slips, and probably signing up to volunteer for the next PTA bake sale. Sometimes we need some professional advice, especially when it involves big dollar investments.

    Life can be hectic as a mom. Sometimes you have so much on your plate that it’s easier to skip the complicated stuff and focus on the end goal. But that doesn’t apply to getting a loan. You should never put your signature on the dotted line if there’s even one thing you don’t understand about your contract.

    It’s your lender’s legal and moral obligation to explain every aspect of your loan agreement to you. Don’t be too shy to speak up if you need clarification. Above all, if your lender is vague or refuses to be clear about any part of your contract, don’t sign! No amount of money is worth being bound to a dishonest lender.

    Common Car Title Loan Terms

    A car title loan is a loan that involves you handing over the title to a vehicle you own free and clear to the lender in exchange for money. The lender holds your title for the duration of the loan, meaning you won’t get it back until you pay the loan off in full. These types of loans don’t involve credit or background checks, and the income requirements are usually very lenient, making them attractive to people with poor credit or low income.

    Car title loans generally charge high interest fees. Interest fees are the finance charges for obtaining the loan. On a $500 loan, for example, the interest fee is typically 25 percent or $125. According to the Federal Trade Commission, lenders are required by law to disclose the finance charge on your loan as a dollar amount and as an annual percentage rate (APR). An APR is how much the interest rate would be if the loan period was a year.

    These loans are also usually short term, meaning you’re expected to repay the full loan amount plus interest fees and other charges in a much shorter time frame than most other loans. The loan term is typically 15 to 30 days, though some lenders allow more time. If you can’t pay off the loan in the time frame agreed upon in your contract, you can roll over the loan. Rolling over a loan means you pay the interest charges only and then extend the full loan for another loan term. If you borrowed $500, for example, a rollover would cost you $125 and you’d owe $625 the next month (the loan amount plus interest).

    When a lender allows you several months to pay back the loan, he or she may want you to pay small amounts for the first few months and then one final balloon payment. A balloon payment is a large payment that usually consists of the full amount of the original loan plus the final month’s interest fees.

    When you hand over your car title, the lender puts a lien on your car. According to Drive-Safely.net, a lien gives the lender the right to take over ownership of your car if you default on your loan. Defaulting means you don’t pay your loan back in accordance with your loan agreement.

    When a lender takes your car, he or she has the right to sell it to recover the amount of the loan that you didn’t pay. In many states, lenders don’t have to pay you the difference if they make a profit off the sale of your car.

    If you’re able to pay the loan off sooner than agreed upon, most title lenders will charge an early repayment penalty. This means you’ll be financially punished for paying the loan off early and costing the lender potential interest fee earnings.

    Weigh Your Options

    Exhaust all of your options before you apply for a title loan. They’re predatory loans, meaning they unfairly cost the consumer too much money. If you must take on this type of loan, be sure you understand what you’re getting into and that you have the money to repay. Otherwise, you may wind up losing your car.

    We know that as a Mom you are signing your name to permission slips, field trip slips, and probably to volunteer for the next PTA bake sale. So we hope these facts and helpful tips leave you feeling more prepared and confident when signing for future loan endeavors! 


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