What Is the Difference Between Amortized and Interest-Only Loans?

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What Is the Difference Between Amortized and Interest-Only Loans?

There are many factors that go into determining what a car title loan could look like for a particular borrower. The value of their car, their income or ability to repay, and the terms of the agreement for borrowing money, will make every title loan on cars a little different.

Potential borrowers also need to understand their options on what kind of loan they take out in exchange for their car’s title. LoanMart offers amortized loans, whereas other car title loan companies focus on interest-only lending – so what’s the difference?

Amortized Title Loans on Cars

An amortized loan means a borrower has a set schedule of payments over time. These payments include both the principle and interest amounts. The amount that makes up the principle part of the payment is the money that was originally borrowed. The interest is the fee that is charged when people borrow sums of money.

Amortized title loans on cars work well if someone wants to take on the loan over an extended period of time. All the payments that a borrower needs to make will also be in the same amount every time and work to slowly pay off the entire loan plus fees. LoanMart makes sure that our borrowers have all the repayment information upfront, before they sign up so they can properly assess their liabilities going forward. That helps them stick to the repayment schedule.

Interest-Only Title Loans on Cars

When a borrower has an interest-only car title loan, it means that they just make interest payments on the borrowed money to start with. The principle payment or lump sum that was actually borrowed isn’t required until later in what is called a “balloon payment” at the end of the loan term.

Because the interest is only a percentage of the full amount that needs to be repaid, the initial payments will be smaller than with an amortized loan. This makes interest-only loans look like a good option in the short-term. Many people who only need a loan for a period of a few weeks to a month will choose this kind of payment plan. Once the interest amount is paid back, the payments will change because the borrower will start to repay the principle balance.

It’s important to understand the difference between these two kinds of title loans on cars that might be available. If anyone is interested in taking out an auto title loan for between 12 to 36 months, they should speak with a representative to evaluate how an amortized loan would be best for them.


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