When you need cash, looking for a loan may be the best and the one alternative. But selecting the right type is necessary. So becoming aware of the precise nature of each loan type is an absolute necessity in case you’re contemplating even a short duration loan.
What Are Title Loans?
The main feature that defines a title loan is that it needs to be backed up by some type of collateral mostly by a vehicle title. The maximum loan amount depends on the percentage of the car value’s estimation. Title loans can be availed for any amount that is as less as $100. A borrower can settle the total debt at once or in several installments over the scheduled time. It depends on the loan amount and agreement with the lending company or lender.
If you wish to qualify for a title loan, you must have proper ownership of a car legally and there should not be any prior liability on that car title. Credit history is not relevant as this type of loan is backed by some tangible assets. In case of any default, the vehicle title can be transferred to the lending company. But most of the lenders wish to avoid such a scenario if they can and will mostly allow delayed repayment. This will let the borrower pay off only the interest for 1-2 months before he gets ready to repay the amount that is outstanding.
What Are Payday Loans?
Paydays loans when compared to title loans never need a type of property as collateral. This is because they are linked to a borrower’s regular source of income and paid off on the next payday. It is also used to take care of an urgent and temporary shortage of cash until you receive your next paycheck. An individual can get a payday loan issued very fast irrespective of a credit score or any existing obligation. Thus they are very popular among individuals who are not able to secure credit for a long duration or not willing to wait for any bank loan procedure to get completed.
The borrower needs to provide the lender with his employment to receive the approved loan amount. It is done by showing his payslip or the bank statement that demonstrates his regular monthly income. If the required conditions are fulfilled then the loan gets approved immediately on spot. The person who takes a payday loan needs to write a check for the entire loan amount along with the interest that is calculated for the duration of the planned debt for finalizing the deal and it must be postdated. The interest that is charged on a payday loan can be a bit higher to 400% annually.
Which One Is Better?
It is very difficult to classify anyone as a better loan option. This is because both loans have a tendency of taking an unpredictable financial situation and turn things worse. There is less risk of losing a personal property if it involves a payday loan. Title loans come with slightly less rate of interest and let a borrower avail a larger amount of loan. Title loans are well secured by material asset and payday loans are classified as unsecured ones. So lenders have less uncertainty with title loans.
Payday loans are hardly issued for a longer duration for more than 2 weeks and are always expected to be repaid completely at the scheduled term. Thus thy will never exceed the stated amount on the previous paycheck. But title loans have a chance of lasting for several weeks or months. Refinancing is also possible in some cases. So car title loans are larger and can be utilized for the larger need of cash.
Every loan can get out of your hand if you are unable to take some precautions. Title and payday loans are not exceptions. It is easy to forget that the cash that is readily available is not yours and you are actually borrowing it against your future source of income.
If you are facing a sudden expense and having low funds, some better methods to get money is by selling those items that you do not need anymore, asking your company for an advance salary or making use of a credit card. Credit cards may have high rates of interest but their rates are less compared to what you repay for a title or payday loan. Most of the credit cards never charge interest if you repay within a month.
So it is always recommended that you take a loan when it is completely necessary and there is not any solution that can be found. But even then the borrowed title or payday loan amount should never be greater than what is enough for solving your problem.