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Title Loans Vs. Payday Loans: Which One Should You Choose?

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title loans vs payday loans

Life happens, that’s for sure. Everyone experienced a moment of panic when facing a financial emergency and a necessity to address the problem immediately. Since these expenses are unexpected, you can barely cover them if you don’t have an emergency fund. It’s alright since many people face financial emergencies at least once a year and don’t have spare money.

There are several options for people who need a quick cash advance before receiving their paycheck: car title loans, which are based on the value of your car that you give as collateral, and payday loans, which are based on your creditworthiness. Of course, the decision is tough since these options are not as perfect as you may expect them to be, and they have their pros and cons.

Research is an essential part of a financial decision process, and taking a loan implies a lot of responsibility. As well, you should know your benefits, rights, and all nuances of the procedure.

What are title loans?

A title loan is a secured short-term that requires collateral. Often, lenders ask for the borrower’s vehicle as a valuable asset for securing the agreement and predict risks associated with individuals failing to pay their loan back. The vehicle then is sold, and the lender can regain their money.

When you apply for the loan, the lender appraises your vehicle value and offers a loan from 25% to 50% of your car’s value. The balances of these loans come as low as from $1,000 to $50,000 in some cases. The balance depends on what amount the vehicle is appraised for.

You have thirty days to repay the borrowed amount, and most lenders do not agree to provide you with a loan for a longer period. You should give back lent money within this deadline to avoid losing your car and having to deal with other unpleasant aspects. However, some lenders let a borrower roll over the loan indefinitely until it’s repaid. This option will cost you much more than you think, so you should carefully consider if you can allow yourself a prolonged period of repayment.

The average interest rate for this type of loan is 8% to 25% a month, and the annual percentage rate comes to 300%. Such rates seem a bit unfair for a secured loan, but on the other hand, you receive your money on the same day you made a request. Moreover, your credit history doesn’t affect the lender’s decision to provide you with their financial assistance.

Before making the decision to take a car title loan and agreeing to work with a particular lender, you should check whether the lender is legit in your state. Discuss payment options, which can be paying in person, using an online system, or using an automated payment system. Keep in mind that the automated payment system can fail or create a debt on your bank account or card.

Pros:

Immediate response,

No credit check,

Up to $50,000 from your car value

Cons:

The interest rate from 8% to 25% in a month,

Risk of losing a car,

Debt cycle associated with loan rolling over.

What are payday loans?

Payday loans are short-term unsecured loans, often used to cover unexpected expenses before receiving a paycheck. This type of loan is popular because it is the same day loan, lenders don’t check your credit history, and provide you with a flexible repayment period. It also has the possibility of rolling over the loan, but like in the case of a car title loan, the specialist recommends avoiding it.

The process of applying for a payday loan is extremely oversimplified in comparison to traditional bank loans. Most service providers are accessible online, and you need to provide them only with your valid ID, proof of income, and bank account number. You may be suggested to sign up for automatic repayment from your bank account. As we have mentioned, it may lead to unforeseen consequences if you don’t check your account regularly.

Most service providers often offer their customers limited amounts to borrow, while some lenders like paydayinusa.com offer up to $5,000. The APR charges on top of the loan reach from 400% to 500%. Most states regulate lenders and limit interest charges to less than 35% in a month, but payday lenders are the exemption. At the same time, each state has its approach to payday loans, and some states ban these loans. For instance, California allows payday lenders to charge a 14-day APR of 459% for $100 of borrowing. The federal law requires lenders to disclose the finance charges, and you have to be attentive and careful if the lender doesn’t provide you with all information in the agreement.

Note that if you fail to repay your debt in time, you may experience unwanted attention from collection companies and a potential negative impact on your credit history. In case of successful repayment, your credit score won’t be affected at all.

Pros:

Immediate response,

The same day deposit on your bank account,

No credit checks or impact on your credit history,

Cons:

Interest rates no less than 35% in a month,

Having to deal with collection companies if failing to repay on time,

Possibility to get into a debt cycle.

Conclusions

Foremost, you should know how much you need for a loan and then calculate the amount, including fees. People make the common mistake of disregarding the charges and expecting to repay only the initial borrowed amount. Although many agreements describe this aspect, it is easy to overlook or dismiss it in a rush. You should be aware and ready to pay more than you took and estimate all risks associated with both types of easily accessed loans. Simultaneously, try to dodge getting into a debt cycle of borrowings for covering previous ones. Consider taking a temporary side job and looking for alternatives to clear a debt.

At the same time, the lenders also risk experiencing losses if the borrower doesn’t return money to understand the interest rates. It is also helpful to learn in which cases the lender can change them before you get to return the money so that you can be more confident in your rights.

 

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2 Comments

2 Comments

  1. Michelle Brown

    09/05/2021 at 13:30

    Really great article. Thanks

  2. Rommel Lawrence

    05/06/2021 at 07:23

    Yes it is useful, title loans are way better than other type of loans. There are many lender who approve your title loan request with different offers and policies. If you have bad credit and at same time you have a car you can get a car title loan, without any worries. Even You can keep your car after loan approval.

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