Does an Interest-only Title Loan Make Sense?

Interest-only Title Loan

Signature loans in Salt Lake City, South Jordan, Orem, and Provo are not the debt of last resort in Utah; title loans are. They can involve a tremendous level of risk because they come with high interest, a short term, and collateral.

However, using the option to pay the interest can make your signature loan a lot riskier. Putting off principal reduction does not shrink the actual size of your debt, causing you to owe the same amount of money even making timely interest payments.

Nevertheless, an interest-only payment option can provide a strategic benefit if you know what you are doing. If you do not know when it does make sense to use, here are some of the scenarios where it can be advantageous:

You Are Prepared to Repay Everything in a Lump Sum

Usually, a title lender requires a borrower to pay the entire principal in full after the interest-only period ends. Unless you can convince the other party to amortize your debt even if it means you need to shoulder higher monthly payment since it consists of both principal and interest portions, you have to repay all of what you owe.

Dealing with a balloon payment at the end of the term can be difficult, especially when you are used to contending with smaller interest installments. Make sure you are positive to have enough money to settle everything. Otherwise, you might be forced to rollover your loan, pay an extra fee, and make its repayment harder to fulfill.

You Like to Borrow More Money

An interest-only loan benefits a title lender because they get to receive their profit over a shorter period. This payment option, though, is usually a privilege given to borrowers with valuable and marketable collateral and reliable capacity to repay. If you fit the bill, you might be able to access more funds.

But then again, you should borrow a larger amount of cash just because you can. Think about its potential implications for your finances. It can increase your chance of delinquency and put your credit in jeopardy.

You Want to Keep More Cash in Your Pocket

When it comes to debt repayment, timing can mean everything. Sometimes, it is good not to pay off what you owe ASAP when you have better ideas to use your cash on hand.

Keep opportunity cost in mind when negotiating the structure of your repayment scheme. You could use the extra cash to avoid missing out on investment or pay other time-sensitive bills.

You Need Assurance that You Do Not Miss Any Payment

You probably know that punctual and full payment can increase your FICO scores quickly. Without worrying about the principal initially, you are less likely to miss a payment.

An interest-only title loan is a riskier financial product if you do not understand how it works and not know how to use it strategically. Now that you have a more in-depth knowledge of it, you can use it to your advantage if you decide to apply for it.

Share on facebook
Share on twitter
Share on pinterest
Share on tumblr
More from this author
Scroll to Top