So you’re thinking about getting a loan from a finance company? A finance company is simply an institution that makes loans; unlike a bank, you can not keep your money in a finance company. There are a number of national companies that have offices in neighborhoods throughout the country. Though they do have some differences, they tend to operate in the same manner. Having been employed in the industry I can tell you that these loans can serve the consumer well, given the right circumstances, and provided he or she is well informed before even making first contact with an office. The alternative scenario, which happens far to frequently, can leave the consumer utterly bewildered, scratching their heads and hoping against hope that they had never even made that first call or stepped into that office.
Should You Mention Collateral to the Loan Rep?
Of course the first question to be considered is whether one really needs the loan, this article will assume the question has already been addressed and there is a legitimate need for a loan. Secondly, if you believe you have decent credit try your bank or credit union first, you will get a better rate. I never understood those with great credit scores coming in to get a loan at a significantly higher rate than they could get at their bank, though no loan rep who wants to maintain his or her job is going to inform the customer of this inconvenient fact. So your credit is less than stellar and your bank turns you down but you must have this loan. Before contacting a finance company, let’s discuss a few important things that you should consider.
Do you have collateral with a title or deed (e.g. car, boat, house) and would you be willing to attach it to this loan? They may or may not require this in order to obtain a loan but know that this is a possibility, particularly if you have a bankruptcy on your credit report. If you have one vehicle that you rely upon to get you to work for example it can be a major decision to give this title up. They will not give it back to you until the loan is paid in full. In the event of a default, most states have laws on the books stating that a lender can not only repossess the collateral but also sue for attorney and repo fees as well as the balance of the loan if the value of the collateral does not fulfill this balance.
This scenario above is certainly a “nightmare” scenario, and I have seen played out more than once. Therefore, even if you have collateral that you can “put up” for a loan, it is extremely important that do not mention this to your loan rep. If they know you are willing to put something up they will certainly take it, when it may not have been necessary. A loan with a title attached to it is considered safer by the industry and thus it looks better on the loan rep for him or her to have the attachment. The rep may try to induce you to put up the collateral in exchange for a better interest rate. Once again, this is why you will need to make the decision about collateral before contacting the office. A twenty dollar month payment cut can lure some to put up a title against their best judgment when they have not had time to think it through.
Is the Loan Interest Rate Negotiable?
Interest rates, as mentioned earlier, are likely to be higher at a finance company than a bank. Sometimes this is simply because they are giving a consumer a loan that a bank or credit union would not consider. Sometimes one gets an abnormally high rate just because they allow it to happen. A loan rep will have a grid that shows them what rate you are eligible for based on your “credit worthiness”, the amount you want to borrow and what (if any) security is being attached to the loan. Given this, even if you qualify for a lower rate if you do not push the issue about rate you will likely wind up with the maximum allowable by law.
Often times the rep will try to avoid rate all together, and just quote a monthly payment. I used to be encouraged to do this. With a rate like 27% if the customer would allow me to not mention it my job was much easier. It also boosted the office numbers so I would be more likely to bonus. A higher rate means more cash for the loan company. This is where the loan rep and your interests do not match. The only thing you have in common with the loan rep is that you both want a loan to be made. The rep wants you to put up the highest value of collateral (security) possible and to receive the highest rate they can legally give you. Basically, though there will be a limit as to how low an interest rate you can get, the first rate offered is often times not the best you can get. Push to get the lowest rate possible.
Does a Loan Require Credit Insurance?
Insurance will be another item that will have to be dealt with. Virtually all types of institutions that offer loans or credit also offer what is called credit insurance. It is for the sole purpose of paying off or paying on a loan if certain unforeseen occurrences prevent the consumer from paying the loan. Finance companies will generally push their credit insurance aggressively. Loan reps often have quotas and or financial incentives to add this to your loan. As with the higher interest rates it also dramatically affects the bottom line of an office. Common types of credit insurance are Involuntary Unemployment Insurance (IUI), Life, and disability insurance. Sometimes the Life and Disability insurances will be offered as the same policy. These are the same price no matter your occupation, age, and health. My advice on whether to purchase any or all of these policies is only that you need to examine your individual situation. For the purpose of preparing to deal with a finance company, you need to make sure that when you are getting price quotes that the rep quotes you prices both with and without the insurances. There are some reps who will quote a monthly payment to you get you to agree to that payment and make no mention of the insurance they put on the loan. This is not only unethical but can also be illegal. Always read over any insurance documents you may sign in the loan booth. Make sure you are getting only the insurance you agreed to. It is easy for a rep to slip “extras” in to a customer who is not on top of things.
DO NOT get a Non-Credit Insurance Policy
Some finance companies will also try to sell you or even try to slip in a traditional life or disability insurance into your loan. They will add the price of this policy to the top of your loan. Do not under any circumstances buy insurance other than credit insurance from a finance company. Why would anyone want to pay interest on a life insurance policy? This is what one is doing when the price of the policy is added to your loan. There are other reasons not to do this but just know it is not a good idea.
With all of the potential pitfalls to a loan through a finance company there are some advantages. The main one being if you can not get the loan anywhere else it may be your only alternative. Another good aspect is that there are often times offices in your neighborhood. The loan rep who sold you the loan also takes care of most of the maintenance or issues that may arise. This is not the case with all of them however; you may want to ask about this, Finance companies are certainly better than going to a pay day loan office. At least with a more traditional finance company loan, you do not have to pay all of the excessive interest if you pay it off early, you only pay interest for the time the loan is open. A payday loan has a flat fee. If you get a loan at a finance company, you can pay it off in a week often only with a very minimal processing fee.
To summarize your potential adventure in obtaining a loan through a finance company, let’s review the major points you should consider before you apply:
- Go to a bank first
- Think about the possibility they may want collateral in the form of a title, do not offer up a title before they ask!
- Negotiate the best interest rate
- Know what, if any credit insurance you are getting, make the rep quote all monthly payments to you and read over loan docs
- DO NOT get a non-credit insurance policy. These loans should be used as a last resort, and know that being late on a loan can be a less than pleasant experience, particularly with certain finance companies. Remember they are just down the road!
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