Title loans and payday loans are similar but they are not the same. Both payday loans and title loans have high interest rates, with aggressive payment methods, and unfavorable terms most times. The interest rate for payday loans are higher than what you get with title loans; payday loans can be as high as 400% Annual Percentage Rate (APR), while for title loans, it is around 300% APR. The penalties for nonpayment for both loan products are strict and may include taking possession of your asset.
Payday loan are short-term loans in exchange for a postdated check, usually scheduled for your next payday. The amount of check includes a finance charge and the loan total. For example, if you write a check for $120 to receive a $105 loan for a two-week loan term. The $15 finance charge works out to nearly 400% APR, provided you pay back the loan on time.
If your postdated check fails to clear, and you do not make other arrangements to pay on the due date, your lender will roll over the loan into the next two-week term, with another finance charge included and an additional late fee charged. If you still fail to pay, you will be owing more in multiples of the original loan amount as the loan rolls over.
The only saving grace of a payday loan is that it is an unsecured loan, which means it does not have any collateral that the lender can seize if you fail to pay the loan. Payday lenders have aggressive methods of collecting late payment, as some of their representatives can show up in your home or office demanding for payment.
Title loans unlike payday loans are a type of secured loans, which means a collateral is required to obtain a title loan. Most borrowers use their car as collateral and this is called car title loans. Your lender will appraise your car to know its worth. You will be able to get up to 50% of the value of your car, what this means is that, you can get as much loan amount as the value of your car. A title loan is also a short-term loan lasting 30 days, with the monthly interest rate as high as 25%. This means the APR can be up to 300%.
You can still drive your car around town when you take out a car title loan, but some lenders might install a GPS Tracking device in your car.
Your car title is used as collateral and the title remains with your lender while you are paying off the loan. Your lender will place a lien on the car. If you fail to pay, the lender has legal right to repossess your car and sell off your car to cover for the loss. This means, with car title loans, you stand a risk of losing your car if you default.
Which is Better?
It is difficult to pick which is better between the two. Interest rates for a payday is higher than that of title loans. Although, for payday loans, you do not risk losing any asset because it is an unsecured loan but for title loans, you might lose your collateral.
If you are in need of cash, you can ask friends and families for help, request a salary advance from your employer, or sell a property to raise cash rather than take out a loan that may even make things even difficult for you. Find out more from https://www.bloglovin.com/@financecarloans/how-to-gift-a-car.
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