For California car title loans, the type of interest on your loan is known as “simple interest”. This means that interest is charged on the amount you owe on the loan (the “outstanding balance”) every day until the loan is repaid. Every loan payment is used first to pay any account charges due (such as late fees, bounced check charges, and other), then to pay interest due, and then, if any money is left, to pay down the outstanding balance.
On Time Payments
If you make every loan payment exactly on time as shown in the payment schedule disclosed in your loan agreement, your payments will add up to the Total of Payments shown in the the Truth-In-Lending Disclosure.
Here’s the big secret about making car title loan payments early: If you make a loan payment early, the interest portion due from that payment will be lower than normal because you are paying back that payment’s share of the outstanding balance sooner than normal (you save interest because it is calculated on a daily basis; so the fewer days you borrow money, the less interest you owe). We use the rest of the normal interest part of the payment as an additional amount to pay down your outstanding balance along with the normal amount included in your payment. So, early payments pay back the outstanding balance faster than on-time payments. If you make early payments often enough, you will pay off your loan early and you will pay less in actual Finance Charge than shown in the Truth-In-Lending Disclosure, possibly saving hundreds of dollars.
If you make a loan payment late, the interest you owe increases every day your payment is late. This means that a late payment will not include enough money to cover both the interest and that payment’s part of the outstanding balance due. Because interest is taken out of each payment before the outstanding balance is paid, a late payment will not have enough money in it to pay down the normal amount of the outstanding balance. In some cases, your late payment may not pay down any of the outstanding balance and the interest you owe may be more than your total payment. As a result of late payments, you may end up paying more than the Finance Charge shown in the Truth-In-Lending Disclosure. This means that the loan will end up costing you more than originally planned. We advise you to make your payments on-time or early, if at all possible, to minimize your cost of the loan.
If you ask us, we will calculate the daily interest due in dollars per day on your outstanding balance. This will let you will know exactly how much you will save by paying early or how much you are losing by paying late. This daily interest charge in dollars changes depending on your outstanding balance.
How do you calculate my loan payments?
We calculate your loan payments so that you will repay your loan in substantially equal payments over the term of the loan. This means that, if you make your loan payments on time, you will not face a “balloon payment” (a single larger payment that would pay off your loan outstanding balance, interest, and other charges) due at the end of your loan.
Federal Truth-in-Lending Disclosure
Below are brief descriptions of some of the information contained in the loan disclosures that are required by both Federal and California law. These disclosures are intended to inform you of the charges associated with your loan and to provide you with a basis to compare different loans more readily.
Annual Percentage Rate
The Annual Percentage Rate (APR) is a calculated rate and not the interest rate of your loan (it is the loan’s interest rate that determines the amount of interest you pay on the loan). In addition to interest, the APR takes into account certain Prepaid Finance Charges, such as an Administration Fee, and the Amount Financed. The APR is calculated by spreading the Prepaid Finance Charges over the life of the loan; this results in an APR that is higher than the interest rate shown in your loan agreement.
Prepaid Finance Charges
Prepaid Finance Charges are defined by the Federal Reserve Board, must be paid by the time the loan ends, and are calculated into the APR. These charges include the Administration Fee for your loan. Prepaid Finance Charges are found in the Itemization of the Amount Financed box in your loan agreement.
The Finance Charge includes the total amount of interest that you would pay if all payments are made on-time for the full loan term and the Prepaid Finance Charges.
The Amount Financed is the amount of money given to you plus the Department of Motor Vehicle fees and any money paid to others on your behalf (such as paying off an existing loan on your car). The Federal Reserve Board requires that Prepaid Finance Charges are no included in the Amount Financed. The Amount Financed is the loan amount used in the calculation of the APR.
Total of Payments
The Total of Payments is the total amount of principal and Finance Charges that you would pay if all payments were made on-time for the full loan term. It is the number of payments multiplied by the payment amount.
The Payment Schedule shows the number of monthly payments due over the life of the loan, the amount due for each payment, and the date the first payment is due.