Finova Financial Auto Equity Loan: 2017 Review

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finova_logoFinova Financial offers emergency loans for borrowers who need a small amount of money and have a car they’re willing to pledge as collateral. It’s a type of auto equity loan for when you need fast cash.

Details about Finova:

  • Lends in Arizona, California, Florida, New Mexico, South Carolina and Tennessee as of January 2017.
  • Lends between $500 and $5,000 with a repayment period of 12 months.
  • Offers same-day and next-day funding.
  • Looks at your credit profile and the value of your vehicle for approval.
  • Charges annual percentage rates between 17% and 30% but charges additional fees that aren’t part of the APR.
  • Requires the vehicle to be fully paid off and carry proof of comprehensive and collision insurance coverage.

To learn whether Finova is a good fit for you, read on:

What is Finova?

What does a Finova loan cost?

Finova’s requirements and how to apply

What is Finova?

Florida-based Finova Financial started lending in 2015. The company wants to reduce the cost and hassle associated with a car title loan, CEO Gregory Keough says.

Finova loans are advertised as lines of credit, but they differ from the revolving credit associated with a credit card or personal line of credit because you get your loan amount in a lump sum, not as a credit limit.

Finova says its loans are designed to address the major drawbacks of car title loans. Such loans typically cost 300% APR and are due in one to six months, according to a 2015 report by the Pew Charitable Trusts. They are known to leave many borrowers in a debt spiral, and borrowers risk losing their vehicles. Lenders of car title loans also require an in-person visit to complete the loan application.

Finova offers a longer loan term, lower rates and an online-only application, Keough says. Borrowers still risk losing their vehicle, but Finova says it tries to work with borrowers who have trouble making payments before they get into a default situation.

What does a Finova loan cost?

On average, a Finova customer borrows $1,700 and qualifies for an APR of 22.5%, according to the company. While they are significantly cheaper than traditional car title loans or payday loans, Finova loans are still an expensive option.

Here are the costs associated with Finova loans:

  • Extra fees: Not all fees are included in the APR you receive. On top of the rate you qualify for, you’ll have to pay a $25 “credit investigation” fee.
  • MoneyGram fees: Many of its borrowers don’t have bank accounts, Finova says, so borrowers typically use MoneyGram locations to make their loan payments. MoneyGram charges a flat fee of $11.50 per payment for amounts below $900.
  • Insurance costs: Finova requires borrowers prepay for 12 months of comprehensive and collision insurance or buy an optional form of insurance from the company, known as a “debt cancellation addendum.”

Unlike comprehensive and collision insurance, this optional feature covers only your loan payments if your car is damaged or totaled. It doesn’t cover the cost of repairing your car in case of an accident.

The cost of Finova’s addendum is almost equal to the loan amount a borrower is approved for, the company says. A part of your monthly loan payment goes toward the addendum for the life of the loan. The addendum can greatly increase the cost of your loan. For example: Consider a $1,700 Finova loan that is secured by a 2003 Toyota Camry, due in 12 months. Finova’s addendum for 12 months would add $1,700 to the cost of the loan.

Looking at the alternative, here’s the cost of 12 months of comprehensive and collision coverage in the six states Finova serves, according to NerdWallet’s car insurance tool:

  • Arizona: $298.90
  • California: $310.10
  • Florida: $305.50
  • New Mexico: $327.80
  • South Carolina: $235.70
  • Tennessee: $353

(Our calculation assumes a female driver age 37 with a poor credit score and a good driving record, which is how Finova describes its typical borrower. All states also require liability insurance.)

In each of the states, the cost of the coverage is much less than the $1,700 Finova addendum, but it must be prepaid — something few borrowers can do. As a result, 80% of borrowers choose the more expensive Finova addendum, the company says.

The bottom line: Finova’s stated APR ranges from 17% to 30%, but adding the fees and the cost of the addendum for a $1,700 loan, the effective APR is actually 187%.

If you need money quickly, Finova is a cheaper option than a payday or car title lender. But Finova is more expensive than a secured loan from a bank, credit union or online lender.

If you need a small sum of money quickly and have a bad credit score (below 630) or no credit:

Depending on your credit history and the condition of your vehicle, you could qualify for an auto equity loan from a bank or credit union or a secured loan from an online lender. These loans have a maximum APR of 36%, and repayment terms span several years.

Finova’s requirements and how to apply

Here’s what you need to know about qualifying for a Finova loan:

Minimum requirements

  • No minimum credit score.
  • No minimum years of credit history; applicant must not currently be in bankruptcy.
  • Accepts cars and trucks as collateral.
  • No bank account required.

Finova’s average borrower profile

  • Credit score of 550.
  • Five years or less of credit history.
  • Car is typically less than 14 years old with fewer than 200,000 miles.
  • Payments made via MoneyGram for an extra fee.

You can complete the loan application online, on your phone or by calling the company. Watch Finova’s video demonstrating the application process.

Next steps

Check your credit score for free on NerdWallet

Learn more about car-title loans

Learn how secured loans work

Amrita Jayakumar is a staff writer at NerdWallet, a personal finance website. Email: ajayakumar@nerdwallet.com. Twitter: @ajbombay.