Of all installment loans in Boise, Caldwell, Nampa, and Meridian, title-backed ones involve a lot of risks. If you choose an interest-only payment option, though, the stakes will go higher.
Paying just the interest of your title loan means the principal remains untouched. In other words, your lender receives the profit while the size of your debt does not change. If you fail to repay what you owe after the interest-only period is over, you will still be on the same level of indebtedness since you did not make any progress in repayment. Fortunately, there are strategies to minimize the inherent risk of an interest-only title loan.
Lengthen the Term
Rule number one is to negotiate for the long term. The more time you have to save for the balloon payment, the higher the chance of zeroing out the principal.
Granting you a longer term can also benefit your title lender, for not defaulting on your loan means no financial loss to the other party. Asking the due date to be pushed back more days, weeks, or even months can increase your overall interest payment, so be prepared to make concessions.
Think About Other Bill Due Dates
When negotiating for the principal’s due date, do not overlook when your other bills need to be paid too. Chances are, your title loan repayment is not your only financial obligation. Prioritizing debts with higher interest matters, but it should not come at the expense of another bill. As a responsible borrower, you ought to plan everything to avoid dealing with conflicting due dates.
Amortize Your Loan
You might not have to repay your title loan principal in a lump sum. If your credentials are excellent, you might be allowed to amortize your debt and break it down into installments. In turn, your new monthly payments will not be without an interest portion. Nevertheless, contending with more higher all in all is usually better than failing to settle the entire principal with one payment.
Do Not Overborrow
Applying for a loan size bigger than your financial need is hardly beneficial. First, a more significant debt raises the interest attached to it. Second, the principal repayment becomes a tougher undertaking. Unless you use the extra money you loan to grow your wealth one way or another, it does not make financial sense to borrow more than you need.
Know Where to Get the Funds
Early on It is imperative to have a plan to pay off everything before you take out an interest-only title loan. Your job is to reduce the level of uncertainty about repayment, so you can close the account without hurting your credit.
Sure, you can extend the loan if you need more time, but this option should not be your plan C at least. Borrowing against your car title without any guarantee you can repay is a fast way to lose your vehicle.
Title lending and risk-free borrowing are mutually exclusive. But if you think things through, you can weather a brewing financial storm and keep yourself from getting buried in high-interest debt.