Many people ask which one is better between payday and title loans. It’s better to do your research before choosing a loan. This way, you can find the best type of loan according to your situation.
Two common types of loans are title loans and payday loans. Both of these options provide a quick solution to many situations. However, they have their differences that you should know ahead of time. Read on to learn more about payday and title loans so that you can make an informed decision about your financial condition.
Payday Loans vs. Car Title Loans
Before we tell you the pros and cons of each of them, let’s discuss what title and payday loans are.
What is a Title Loan?
A title loan is a secured loan where borrowers use their vehicle’s title as collateral. If you want to have a title loan, you need to allow a lender to place a lien on your car title. This way, you will temporarily surrender your vehicle title’s hard copy to the lender in exchange for a loan amount.
The laws and terms of title loans vary from state to state. Unlike traditional loans, most lenders don’t take your credit score into account. This way, borrowers with low or no credit scores can also borrow money in a financial crisis, making it an attractive option for many people.
What is a Payday Loan?
A payday loan is an unsecured loan, typically with high-interest rates. Instead of using your car as collateral, these loans are secured by a debit authorization and postdated check. These loans also provide quick relief in times of financial emergency or until your next payday.
Its interest rates are generally high and vary depending on the state you live in and the lender you borrow from. These loans are widely available as compared to a title loan.
Pros and Cons of Title Loans
Title loans have many advantages and also some disadvantages to them. One clear benefit of getting a title loan is you get to keep driving your car. Yes, you can still use the car you used to secure the money you need.
Furthermore, a title loan application process is generally easier and quicker than its counterparts. Most title loans don’t have penalties, and people with any credit score can apply. Most title loan lenders don’t even report to the credit bureau. And thus, your credit score won’t be affected when you get late or default.
The drawback of title loans is their high-interest rates. That means you may pay more compared to what you initially borrowed. Also, you risk losing your vehicle if you cannot pay the amount back as per the agreement.
On the whole, car title loans can be great when you’re dealing with financial emergencies. But they also carry their risk. Therefore, you must understand them well and ensure that you can afford all the terms and payments mentioned in your contract.
Pros and Cons of Payday Loans
Like title loans, there are many pros and some cons to payday loans. These loans are easy to apply for, and you can get quick funding. Their application process is also short and simple. Moreover, these loans aren’t based on your credit score. So people with any credit score can quickly get the money they need, unlike traditional loans.
The disadvantage to payday loans is also high-interest rates. This makes them expensive to borrow and tough to repay if you lack funds. These loans also don’t help build up your credit. So they should be used as a last resort solution for an urgent situation.
Which loan is right for me?
As you can see, each of these loans has many pros and cons. Your choice of loan should depend on your needs and financial situation. The biggest difference between the two is the length of repaying time and the demand for collateral.