A financial emergency can happen to anyone. Regardless of your bank account status, there is always the possibility of falling on hard times. It’s a good idea to understand where you stand and to know your options. There might come a time when an unbudgeted expense requires you to consider looking into a loan. While you have a few options in this arena, let’s look at two of them. What are the differences between payday loans vs title loans?
Payday loans are easy to acquire short-term loans. They are generally paid off in full at the end of the term. Oftentimes, your term is 14 days. Most payday loans are rolled over into another loan. This can give the borrower more time to pay back the loan but can result in additional fees. For this reason, it is important to regulate your use of payday loans.
How Does It Work?
Most payday loan places will require you to write a post-dated check to them for the amount you intend to borrow. This includes the finance fee. You’ll also provide proof of income, bank information, and a photo ID.
Rates can vary, but expect interest fees to be in the 400% range. Also, most states cap the amount you are allowed to borrow to $500 or less. If you are not able to pay back the loan at the end of the term, you will be charged additional fees and penalties. When your term is up, you will have a few options. You can pay off your owed amount in cash, create a new loan, or allow the lender to deposit your post-dated check.
An important thing to keep in mind about the process is that, though most payday loans do not check or mark against your credit for using them, if you are unable to pay back your loan and you go into collections, you will see an impact on your credit score.
Title loans are loans that use your vehicle’s title as collateral. You usually have longer-term with a title loan. While payday loans see an average term of 14 days, some reputable lenders allow up to 3 years to pay back an auto title loan. Loans are subject to your vehicle’s value and how much you have paid into your car loan. Generally, this means you will want to consider a title loan when you have already paid off- or are close to paying off- your vehicle.
How Does It Work?
Historically, you were required to take your car to a storefront business, where a lender would inspect the vehicle and determine its value, compared to how much is owed and how much you were looking to borrow. There, you would hand over the title and other required documents before they would consider a loan. But, with the magic of the internet age and the rise of websites like Max Cash Title Loans, this process can be done online.
You’ll need to provide a copy of your title, proof of income and insurance. If you are using a brokering service like Max Cash, they will search for a lender that suits your particular situation. As with payday loans, rates also vary widely, but a smartly brokered loan can have an interest rate as low as 175%, compared to the national average of 200-400%, so make sure you are weighing your options.
Car title loans are a quick way to get cash with a reasonable interest rate, but understand that your payment history can be reported to the credit bureaus. Be sure that you are making your monthly payments on time, to take advantage of the credit benefits. Additionally, while you’re able to keep and drive your vehicle during the life of your loan, the title lien is subject to repossession if you default on your loan. You can avoid this by making your payments on time and communicating with your lender if your situation changes.
Is a Title Loan Better Than a Payday Loan?
The short answer is, yes. A title loan is better than a payday loan because the interest rates are much lower and you have more time to pay back the loan.
There are several important differences between a payday loan vs a title loan. It is hard to predict and plan for the unexpected expenses that life brings. But, if you are prepared with knowledge about your options, you can approach these situations with clarity and a stronger peace of mind. Know that your financial health is worth researching. Being proactive by investigating your options is a positive step toward strengthening your financial armor. Good job!