Inflation in the US has been steady for decades — so now that it’s increasing, consumers are feeling it deeply, and how inflation affects your title loan. The trend isn’t stopping, either. The Financial Times reports that inflation reached 8.6% in May, and it’s only predicted to increase even further.
You may be familiar with the impact of inflation on things like the price of goods and services. This might leave you with one nagging question: can inflation also affect car title loans? Car Title Loans California aims to answer this question below.
How can inflation affect title loans?
Inflation generally occurs when the value of a currency — like the US dollar — decreases in value. This lowers our purchasing power by causing the prices of goods and services to increase. In doing so, it can also affect car title loans. This is mainly because of inflation’s relationship with interest rates. AskMoney explains that inflation and interest rates trend in opposite directions: as inflation increases, interest rates go down. Instead of making it easier for you to pay back your title loan, inflation raises the prices of basic goods and services. You end up spending more on necessities and have little left over to pay for your title loan.
Conversely, inflation goes down when interest rates increase. This is precisely why the Federal Reserve usually decides to raise interest rates in times of high inflation. In fact, CBS reports that it recently raised rates by 0.75% in June — the highest increase in almost 30 years. Ultimately, this means you’ll have to pay more interest over time.
The way inflation affects interest rates can thus make your title loan more difficult to repay. This effect can be exacerbated if inflation continues to rise. With the same CBC report finding that the Fed may continue to raise interest rates to combat inflation throughout 2022, this may continue to be the case.
What can I do to avoid these effects?
Borrow what you need
First, you must make sure you can pay back your loan despite ongoing inflation. Making a budget can help. Take the current basic goods and services prices and subtract them from your monthly income after taxes. Put some money aside for emergencies. What’s left is the amount you can use for loans. Only take out car title loans with monthly installments that you can afford.
Missing out on monthly payments is a slippery slope that can cause a default, so avoid this as much as possible. In “How To Pay Off Title Loans” we wrote about the benefits of setting up automatic electronic payments. These can be deducted from your checking account every month. Doing so will help you avoid missing payment dates. It will also save you the stress of having to login into your account every month just to transfer funds.
Refinance your title loan
You may have already taken out a title loan — or you may find inflation affecting your title loan in the future. The Balance explains that refinancing can help you regain control. Head to your lender with your original loan certificate, your car’s title and vehicle identification number, and any proof of inspections or repairs that have taken place after the loan was taken out. From here, you can inquire about the amount you still owe and pick a loan repayment plan.
Rising inflation can affect your chances of getting the car title loan you need — so it’s best to take steps to soften its impact. Hopefully, this article helps you pay off your loans while keeping your car safe.