Jul 15, 2020 12:15 AM EDT
Title Loans vs. Payday Loans: Which One is Better?
People who need short term loans come across two common options: one is payday loan while another is title loans nearby. If you wonder what option is the best, you should get a complete understanding of both options. It's time to explore information about both kinds.
What are Payday Loans?
It's a straightforward unsecured loan where you get money from a payday loan provider and write a post-dated check. For example, if you want to get $100, then you write a check of $115. The fifteen dollar extra you are paying is the fee or interest of this loan.
With a payday loan, you don't have much time. You need to pay back the cash within two weeks. What if your check gets bounced? Your payday loan provider will reset the terms and additional charges of late payment into your account in that scenario.
A payday loan seems quite promising, but people don't like to opt for it because they end up in a vicious debt cycle.
The plus of a payday loan is that it's an unsecured loan, and the lender has to bear the high risk. But you can't take that loan for granted because the collectors of those loans don't have a good reputation. As you provide your residence details, they can show up at your doorstep and use all bad tactics to make you pay for the loan.
What is a Title Loan?
When you opt for title loans nearby, then this option is pretty convenient. When you compare this loan with a payday loan, it becomes clear that it is fast and efficient. You can get the loan quickly. However, the main reason that convinces many people to go with this loan is its low cost. You can get a car title loan with a flat interest rate. For example, a title loan comes with a 300 % Annual Percentage Rate, while a payday loan comes with 400 % ARP. Know how to calculate interest rates on a Payday loan.
Title Loan Vs. Payday Loan - Which one is the better?
If you are thinking of raising a big amount, then car title loan makes more sense. You won't be able to generate a significant loan amount with a payday loan.
Another significant aspect that makes the difference between both loans is the collateral. Your car title will work as collateral for the best title loans. However, you don't need to put anything at risk with a payday loan.
In case of default, the lender has his right to sell your car and recover his amount. However, you don't have to face that problem with a payday loan. Using collateral isn't the first choice of lender. Therefore they stretch the terms and additional charges of the late payment plus interest in your payment schedule. If you don't pay on time, both loans become expensive over time.
Another big thing that you must consider is the scam rate of payday loans. You may get the loan, but later your loan provider may use all your financial and personal information against you. The aggressive collection methods of payday loans include constant phone calls, litigation threats, and intimidating letters. If you don't want to involve yourself in big trouble, you better use your car title and lend money against it.
Join the Conversation