How To Differ Title Loans and Payday Loans
How do you handle financial emergencies? If you have adequate savings, this may not be a big issue. But what if the savings are inadequate and you don’t have time to wait? A loan will greatly help in this case.
There are several loan options you can choose including car title loans and no credit check instant approval payday loans online. These options may not be the best and that is why research is essential. It’s important to know how they work, their pros and cons, and which type is more appropriate for your situation.
What Are They?
Title loans are short-term loans secured by a borrower’s vehicle. That means you cannot access this loan if you don’t own a car.
Does that mean that the lender will take the vehicle until the loan is fully paid? No. You can still drive your car to any location but remember you don’t own the car until you completely repay the loan.
How Do They Work?
The application process is fast and simple. First, the lender will ask for the vehicle you are to put as collateral. The lender will inspect your vehicle. The inspection process enables the lender to determine the worth of the vehicle which plays a big part in determining the amount you can be approved for.
You will then be issued with the necessary paperwork while the other requirements are being checked. Always check what the lender requires and make sure you have them to avoid loan rejection.
Once everything is over, you will be given the response after a short while of whether or not your loan request has been approved. In case of approval, the money will be released to your account.
How Much Can You Borrow?
Well, there is no specific set amount to borrow. The loan amount depends on your car value. That is after the car inspection, the lender appraises the car value. The loan amount is between 25% and 50% of your car’s worth.
Remember, a car value depreciates in time. This means the lender won’t look at your buying price but the car price at that time. The loan can range anywhere from $100 to around $10,000.
What Are the Interest Rates?
Car title loans’ interest rates are not that friendly even though they are secured. The rates range from 7.99% to 25%. That translates to an APR of 300% annually.
The good thing is that loan granting is quick and no need for credit checks.
What Is the Repayment Period?
Car title loans are short-term. That means you have about a month to repay the loan with interest. However, some lenders can let you roll the online title loans for another 30 days but with prepayment penalties.
Discuss with your lender if this option is available and the fees involved.
Payment options also vary. Some lenders prefer in-person payments while others prefer using an online system.
Payday Loans
What Are They?
Just like a car title loan, a payday loan is a short-term loan that is repayable within the next paycheck. It is used to cover some financial emergencies before getting the end month’s salary.
How Do They Work?
I remember mentioning that a title loan application process is fast and simple. Well, the payday loan application process is the simplest not to mention that the loan approval process is still fast.
Often, the requirements for a payday loan are:
- National ID
- An active bank account
- Proof of a stable income
There are no credit checks involved hence you can be sure of approval once you meet the above requirements. The operations for e transfer loans 24/7 in Canada, meaning they operate during the day and night.
How Much Can You Borrow?
Some US states don’t allow the operation of payday loan services due to their high interests. The 32 states which allow payday loan services have a cap on the maximum amount one can borrow.
Therefore, the loan limit depends on the state you are in. The loan amount can also depend on your eligibility and the lender. On average, a payday loan ranges from $50 to $1000.
What Are the Interest Rates?
Payday loans have very high rates. That is why according to CNBC reports, some states have put a 36% cap on consumer loans which includes online payday loans.
To make it simple, for every $100 you borrow, you are charged an interest of between $20 and $30. That translates to an APR of over 400% annually.
Repayment Period
Most payday loans have a loan term of 30 days. That means you are required to repay the loan in full after a month. However, some lenders can extend this period to 3 or even 6 months.
What to Choose Between a Title Loan and a Payday Loan
The following factors can help decide on the loan type that is best suited for your situation.
1.Presence of a car
If you have a car, you can opt for a title loan. On the other hand, if you don’t own a car or don’t want to put your car at risk, you should go for a payday loan.
2.Loan amount
Title loans can have a higher loan amount depending on your car’s worth. Hence if you need a large amount you can opt for title loans.
3.Interest rates
Car title loans have relatively lower interests compared to payday loans hence may be the best option to choose.
4.Requirements
We have already mentioned the requirements of payday loans. A title loan requires that you have:
- Ownership of a car
- Government-issued ID
- Proof of car insurance
- Proof of residency
If you lack the above requirements, you should go for the payday loan.
Conclusion
There you go! I hope that you have decided on which loan type to choose depending on your circumstances.
Read Also: Boost your chances of getting a car loan
