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 you cash” 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 educated about the process before they enter the office. Otherwise, the consumer may be utterly bewildered, and regretting they had ever called the office.
If you believe you have decent credit try your bank or credit union first, you will get a better rate.
Other Considerations
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 or judegements on your credit report. They will not givethe collateral to you until the loan is paid in full. In the event of a default in most states they 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.
It’s important that if you decide you do have collateral that you can “put up” that you do not volunteer this information 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. This is why you will need to make the decision about collateral before contacting the office.
Interest rates will be higher at a finance company than a bank. Sometimes you get an abnormally high rate just because you allowed it to happen. Even if you qualify for a lower rate, if you do not push the issue you will likely wind up with the maximum allowable by law. Often times the rep will try to avoid talking about the rate, 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. 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. Tthere 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. Negotiate!
Insurance
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 push their credit insurance aggressively. Loan reps often have quotas and or financial incentives to add this to your loan. 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. 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 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.
Always read over any insurance documents you may sign in the loan booth. Make sure you are getting only the insurance you agreed to. 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?
Advantages to A Finance Company
With all of the potential pitfalls to a loan through a finance company there are some advantages. 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.
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.
Remember these key points before you contact a finance company. 1) Go to a bank first 2) Think about the possibility they may want collateral in the form of a title, do not offer up a title before they ask! 3) Negotiate the best interest rate 4) Know what, if any credit insurance you are getting, make the rep quote all monthly payments to you and read over loan docs 5) 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 and they will come to your door!