How to Calculate APR on a Car Title Loan

Daniel Joelson

Daniel Joelson

Total Posts: 583

Published Date: December 23, 2021

Daniel Joelson has been in the consumer finance space since 1994, he has helped to develop underwriting manuals for the financial sector. With a vast amount of Knowledge in consumer finance, he has been writing articles for all types of loans. With his knowledge, he is able to help many people to answer different financial problems.

Calculate Your APR On Your Title Loan

This article was brought to you by TFC Title Loans, we try to bring to you the most informative information. If you are interested in getting a title loan in your area, we are able to help you with our large referral network.

All of our referral partners are in compliance with the CFPB.

As a potential short-term borrower, you can pledge your car as collateral. Often, you will go for the car title loan when you need quick cash to settle a bill, manage debt or attend to an emergency.

Knowing your annual percentage rate (APR) is the first step in determining whether a car title loan is right for you. This is particularly important since different financial institutions will offer you different rates on the car loan.

How Do You Figure Out APR On a Car Loan

A car loan’s APR refers to the cost you will be paying on the borrowed money every year. The figure often expressed as a percentage includes the interest rate on the car loan and additional fees. Notably, the car title loan is not usually borrowed for a whole year. Still, the APR is calculated annually.

While the federal government, under the Truth in Lending Act, makes it paramount for the lender to inform you as the consumer of the APR before you sign the loan agreement, you might still want to calculate it yourself.

To do that, you will need to know the loan amount. The latter is the total amount you hope to get for your vehicle. This will typically be the cost of your car. Additionally, you will need to determine the loan term, which is the length you intend on taking out the auto loan. Finally, you will need to ask your lender what their loan’s interest rate would be and what additional fees you would incur, including the origination fees.

After collecting all the information mentioned above, you will then need to calculate your estimated monthly payments.

Calculating the Estimated Monthly Payments

To calculate the monthly estimated payment, you will need a spreadsheet. On it, you will enter the following formula into one cell.

=PMT (interest rate expressed in decimal/12, number of months in the loan term, loan amount, with additional fees)

Using the spreadsheet and the figures you had collected from your preferred financier, you should be able to get your estimated monthly payments. Chances are, you will get a negative figure when you use the formula. This should not throw you off, as the number will still come in handy when calculating the estimated APR.

Calculating Your Estimated APR

For the estimated APR, you will require the following formula entered into a cell in your spreadsheet.

=RATE (number of months in loan terms, monthly estimated payments, value of loans minus any additional fees) *12

Note that to calculate the estimated APR, you have to have already calculated the monthly payments and have the complete breakdown of all additional fees. The negative figure from the monthly estimated payments formula should be entered as-is.

What to Look for in A Good Car Loan APR

When you are pressed for cash that you need for an emergency or to settle your bills, you might be tempted to overlook the APR your car title loan attracts. In hindsight, this would be detrimental as different lenders usually offer different rates.

Still, the Federal Reserve has managed to put a cap on just how much APR a car title loan should attract. Specifically, as of August 2020, all commercial institutions can only charge an average APR of 4.98% on car title loans of a duration ranging from 48 to 60 months. Still, financial institutions can play around with this figure depending on various factors.

These additional factors that might affect your APR on the car title loan include:

Your Credit Scores

As with any other financing, most financial institutions will consider your credit score before extending a car title loan to you. As it pertains to a car title loan, the better your credit score, the lower the APR will be. Specifically, they will often offer you a rate closer to the recommended 4.98%, which should significantly reduce your expected monthly payments.

The Loan–to–Value Ratio

As mentioned above, how much you borrow depends on the cost of your vehicle. The latter will also affect just how much APR is charged on the loan that you take out.

If you take out a loan amount that is significantly less than the value of your vehicles, you should get a sizably lower rate. This will often apply if you have made a sizable down payment or if you have a car that has a significant trade-in value.

Note that the decision to give you a lower APR rate when you take out a lower loan is informed by the idea that you present a lesser risk to the lender or financial institution in the event that you default on the loan amount.

The Loan Term

As with the other types of loans offered by financial institutions, a car title loan’s duration determines the APR you are charged.

A longer-term on your car title loan is often between 72 to 84 months. As a borrower, you might want to go with this long-term because it significantly reduces your monthly estimated payments. Unfortunately, these longer loan terms will also mean that the APR you are expected to pay will be substantially higher. Altogether, you end up paying higher interests for longer loan terms.

Chances are, when you are facing a short-term financial crisis, a car title loan might sound like a viable source of short-term funds. When you apply for the said car title loan, the financial institution will often embark on a prequalification check to ascertain if you are a viable borrower. As a borrower, it would be prudent to also embark on a prequalification test yourself to check if the car title loan terms are favorable. This should involve calculating the APR and comparing this to the interest rates and fees from different lenders. Concisely, before signing on the dotted line to take out a car title loan, it is paramount that you first know the APR you will be incurring. Browse through our blog to familiarize yourself with the different title loans available to you. We would also love to hear from you. Contact us today and let us help you process any car loan facilities you might want to take out.

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DISCLAIMER: As our policy to make sure you know what we do and what are our limitations, we offer you these disclaimers. We are NOT A LENDER and we do not make short term cash loans or credit decisions. We are a referral service and work only with licensed lenders/brokers.

We may act as the broker for the loan and may not be the direct lender. Loan proceeds are intended primarily for personal, family and household purposes. We do not offer or service student loans.

*Loan amounts by the lenders vary based on your vehicle and your ability to repay the loan.

*Since we do not lend money directly we cannot offer you a solicitation for a loan, except in the state of California. In all other serviced states we WILL match you with a lender based on the information you provide on this website. We will not charge you for this service and our service is not available in all states. States that are serviced by this Web Site may change from time to time and without notice. Personal Unsecured Loans and Auto Title Loans are not available in all states and all areas.

*Auto Title Loan companies typically do not have pre-payment penalties, but we cannot guarantee that every lender meets this standard. Small Business Loans typically do have pre-payment penalties and occasionally will use your car as collateral to secure the loan.

*All lenders are responsible for their own interest rates and payment terms. TFC Title Loans has no control over these rates or payments. Use of the work competitive or reasonable does not mean affordable and borrowers should use their own discretion when working directly with the lender.

*The amount of people who applied for a loan and we helped and those who received a loan is not the same. We cannot guarantee we will find a lender who will fund you.Just because you give us information on this web site, in no way do we guarantee you will be approved for a car title loan or any other type of loan. Not all lenders can provide loan amounts you may see on this web site because loan amounts are limited by state law and/or the lender. Some lenders may require you to use a GPS locator device on your car, active all the time. They may or may not pay for this or charge you for this. This is up to the lender and we have no control over this policy of the lender. Typically larger loans or higher risk loans use a GPS.

*In some circumstances faxing may be required. Use of your cell phone to receive updates is optional.

*Car Title Loans are expensive and you may have other ways to get funding that is less expensive. These types of loans are meant to provide you with short term financing to solve immediate cash needs and should not be considered a long term solution. Residents of some states may not be eligible for a loan. Rejections for loans are not disclosed to our firm and you may want to contact the lender directly.

*Car Title Loan lenders are usually licensed by the State in which you reside. You should consult directly with these regulatory agencies to make sure your lender is licensed and in compliance. These agencies are there to protect you and we advise making sure any lender you receive money from is fully licensed.

*Trading Financial Credit, LLC dba TFC Title Loans, Car Title Loans California, Dineromax. If you are using a screen reader and are having problems using this website, please give us a call at 1-844-242-3543 for immediate assistance.

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