Title Loans vs. Payday Loans: The Difference
Asking if a payday loan or title loan is better is like asking which winter sickness is best. The interest rate on each loan and how to borrow it is the main difference between a payday loan and a title loan. Both credit products come with exorbitant interest rates, harsh terms, and the potential for aggressive collection behavior.
Title loans usually have lower interest rates at 300 APR (APR), while payday loans have 400% APR, assuming you think it's a bargain loan - but since lenders can seize your vehicle, they also There will be more serious consequences for missed payments.
Title lenders usually allow you to borrow half the car's value, or $5,000. However, depending on the vehicle, some lenders may go further, allowing borrowers to borrow $10,000 or more.
You can usually get a few hundred dollars from a payday lender.
Payday Loans vs Title Loans
Paycheck lenders offer short-term financing against post-dated checks, usually on the next payday. For example, you write a check for $120 to get a loan of $100. The check total includes the loan amount and financing charges. Two-week repayment terms are common, and a $15 financing fee equals nearly 400% annual interest rate (APR), assuming you pay your loan on time.
If your post-dated cheque is not cashed and you do not schedule payment by the due date, your loan will be rolled over to a new two-week term. Additionally, lenders charge another financing fee and penalties or late fees. You will soon find yourself owed many times over.
Many payday lenders target low-income workers and those in desperate need of cash, often but not always in awkward neighborhoods. You can avoid going there by finding an online lender, but doing so comes with its own set of risks. Some lender websites are sophisticated tricks designed to steal sensitive personal information.
Legislation in some regions requires payday lenders to offer longer repayment terms to borrowers who fall behind on their payments. These government-approved deferral options allow you to only pay what you owe and avoid re-borrowing, keeping your debt and expense cycles on track.
The only benefit of payday loans is that they are unsecured debt, which means that if you default on your loan, the lender cannot seize any assets.
Title lenders offer short-term loans secured by the title of your car. Lenders assess the value of the vehicle and offer a loan up to a percentage of its value, typically 25% to 50%. The title loan amount can be much larger than the payday loan amount, in some cases over $10,000. The typical term of a title loan is 30 days and the interest rate is about 25%. A traditional title loan has an annual interest rate (APR) of 300%.
Title lenders like payday lenders charge the highest fees if you don’t pay your loan back on time. Lenders can extend the loan for a further 30 days, but will incur new financing fees and, most likely, penalties. If you're unlucky, lenders can seize and sell your car to pay off the debt.
Because lenders need to evaluate your car, most title loans require you to appear in court. There are mobile title resellers, but they usually charge more to come to you.