You need to understand the type of interest that is going to be calculated when you are paying back your car title loans. While there are sites that offer you a free online price calculator service, some of us remain wondering as to how the calculation is done. Having a basic knowledge about interest and its type can remove your doubt, incase if you are wondering as to how your lender calculates the interest rates, charged on your loan.
Type of Interest Rates Available
It is common that most of the borrowers are unaware about how an interest is calculated. In order to understand that, first of all, you need to understand the difference between Simple Interest and Compound Interest.
As simple as its name, Simple interest is the amount that is charged on the principal itself, i.e. the loan balance. This is calculated by multiplying the principal amount with the interest rate and the time of the loan.
SI = (PXRXT)/100
On the other hand, a Compound Interest is the amount that is paid continuously based on the original principal amount and the interest rate. In Compound Interest, the interest is compounded yearly. Hence, the interest charged is added to the original principal amount of the loan and recalculated.
A= P (1 + R/100) ⁿ [n= time period]
CI = A – P
Once you have a proper understanding of these, you will be able to make a better decision as to which type of loan will work best for your need.
While your interest rate will depend largely on the type of loan that you will opt for, some factors will determine your interest rate.
- Your Credit Score: Risks are determined by the credit history of a person. While other institutions may deny you loan if you have a bad credit history, companies that offer auto pawn loans will provide you with quick cash facility, irrelevant of whether you have a bad or a good credit score. However, your likelihood of repaying the loan may be subject to a change in your interest rate.
- Your Loan Period: The interest rate imposed on your loan will determine the period taken for repayment. It is necessary that you have a knowledge regarding the time span, since once you have an understanding as to how your payment will be on monthly basis, you will be able to manage your payments according to the time. Remember, you can make a higher monthly payment and shorten your title loan period or you can choose to have a longer time by shortening your monthly payback amount.
- Your Interest Rate: In case, you are not sure what interest rate you will be charged after you get your auto vehicle pawned, simply ask your title loan lending company. This is required whether you are using an online calculator or not.
Usually for car title loans, you will get an interest rate (Simple Interest) of 15% to 20%, which is considerable given that auto title loan lending companies offer you with quick cash within twenty-four hours and that too with no credit check.
The SI rate that is charged will be on the entire amount that you will owe. If you plan to use a Simple Interest calculator, you will be able to understand why monthly payback on time is essential. In case you are late, your interest portion (the rate will be charged everyday as long as you do not pay back), will accumulate to a larger amount coupled with the penalty charges.
By doing this simple calculation, you will be able to learn that you will be making many savings if you are making early paybacks. You will not only get out faster from your debt but will also save hundreds of dollars.
Some Quick Tips You Would Like To Remember
This will not likely happen but in case you are unaware how much interest rate, your auto pawn loan company is charging you, simply multiply the leftover balance with the monthly interest rate. If your monthly interest rate is 5%, then you need to calculate the unpaid balance with 5%. Another easy method is to divide the total interest rate and by the total number of days present in a month.
Once you are able to have a sound knowledge regarding the interest rate of your car title loan, you would be able to handle your title loan more prudently than ever before.