Payday and Title Loans

Loans are helpful when you need some cash. We’ve all been there. Well, maybe not everyone has taken out a loan at some point in their life, but we all certainly know what it feels like to need something extra. Loans are great when used responsibly. But that’s the key word – responsibly. There is a plethora when it comes to types of loans and today, we’re going to key in on two – payday and title loans.

Payday and title loans are typically spoken of together which leads many to conclude they must be roughly the same thing. Both are relatively easy to qualify for and don’t always require an extensive background or credit check. But with that said they are costly forms of credit. This means that if you cannot repay by the due date the extra fees will likely be substantial. With a title loan you borrow money using the title of your car. This is your collateral to the entity loaning you the money. A normal title loan will only stretch for 30 days but some lenders can extend that out.

A payday loan is a short-term loan that is like a title loan but the collateral in this instance is a postdated check or providing the lender access to your bank account. The date on the check or when said lender can enter your account is when you are paid by your employer. The title loan implies you have a car to put up for collateral while the payday loan requires a steady job.

We’ll continue detailing the differences, but it is worth noting that these types of loans come with high rates and fees. Alternatives such as local government/non-profit resources, payment extension plans and even taking a side job should be considered before taking out a title or payday loan. Now, if you are left with no recourse then the next question with either the title or payday loan is how much you can borrow. With a title loan you can take out roughly 25 to 50% of your car’s value. On a payday loan, that amount in cash would be anywhere from $100 to $1,000. Many states have borrowing limits however, so it is good to check your official state website.

Now, the ugly part – the interest rates. On a title loan you’re looking at 300% APR and up, while on a payday loan, 400% APR and up. I added an extra 0 to each you’re screaming. No, I didn’t, which is why going back to earlier paragraphs, if you have alternatives, exhaust those first before opting for title and payday loans. Getting away from the percentages for a minute, think of it this way. If you take out a payday loan for $500, you will pay $150 in interest. Wonder why these rates are so high? Well, the collection on some of these loans can be exhausting. There are lots of defaults and late payments and because the loans themselves are so low, payday and title loan lenders need to work in volume to make the business worth it. By doing so they have to charge substantial margins otherwise they would likely go under.