During a financial crisis, you may be confused about the right short term loan to choose. Both payday loans and title loans on cars have some similarities, but they are not the same. Understanding each type and knowing how they differ can help you make the right choice.
Both payday loans and title loans are easy to acquire. Lenders do not follow strict credit checks before approving these loans. They can, however, be costly if you don’t make payments on time. A title loan lender lets you borrow funds as you use your car as collateral. It is a secured loan which you should pay within 30 days. A payday loan comes with no collateral. You can acquire this loan by giving the lender access to your bank account. This means that you can only qualify for this loan if you have a stable monthly income.
Title loans and payday loans may not require a high credit score, but they come with high-interest rates as well as fees, which can make it hard to break from the cycle of debt. Some borrowers find themselves applying or a second loan to pay the first one. Before you consider taking any of these loans, you should get a side job to acquire funds for your needs.
If you don’t have any other option, compare the terms of payday loans against those of title loans so that you can choose an ideal option. Since you use your car as collateral to borrow a title loan, the lender can offer you a good amount. For instance, you can acquire a title loan between $100 and $ 5,500. The exact amount you get, however, depends on the value of your car. Title loan lenders can give you up to 50% of the vehicle’s value. They cannot give you the same amount as the worth of your car since they have to make a profit from selling the vehicle if you don’t repay.
You can borrow between $100 and $ 1000 if you choose a payday loan. A lot of states put borrowing limits on payday loans to protect consumers from harsh lenders. Since a payday loan has no collateral, you don’t risk losing any asset if you default on payments.
The repayment terms of these loans also differ. The standard term of a title loan is 30 days while the average duration of a payday loan is 2 weeks. Before choosing these loans, ensure you have a plan on how you will pay back since they are on a short term basis. Title loans also come with insurance and origination processing fees. For a payday loan, you have to pay about $30 for each dollar you borrow. The lack of paying the loan on time leads to additional fees.
Your choice, therefore, depends on the amount of money you need as well as the amount of risk you are ready to take. If you want a small amount and are not prepared to use your car as collateral, a payday loan would be ideal. If you want more money and are sure of making payments, consider taking a title loan.