When you are in urgent need of cash, seeking a short-term loan could be the best and only available option. But choosing the best type of short-term loan is very important. People in urgent need of money do not take their time to consider the differences between the various options no matter how small they are and this may have huge implications on their finances, so understanding the nature of each kind of loan is essential if you are planning to obtain a loan even the short-term one.
There are several available options when you are in urgent need of cash. Payday loans and title loans are the most popular available loans that can be easily accessed. These are secured loans that lenders cash relatively fast when compared to other secured loans. Substantial interest rates characterize these types of loans, so it’s essential to find more information about every kind of loan before getting into an agreement.
These are types of loans that use your next payment as collateral for the loan. Payday loans use cheque that is written by the drawer payer and deposited on your next payment as security or the electronic fund’s transfer. The next payment is used to determine the amount of loan you can borrow. Most Payday lending institutions offer loans ranging from $100 to $1000.
Features of payday loans
- They offer short-term loans usually two weeks
- They charge a fixed fee for every $100 borrowed
- To qualify for this type of loan one should have an employment and bank checking account
- Low loan amounts not exceeding $255
The main difference between payday loans and title loans is that with a title, you can borrow more money.
Title loans are usually backed by tangible materials such as car titles to act as collateral. The amount you can borrow is dependent on the value of the property or item are using as security. Borrowers can secure amounts as low as $100. Based on the amount and the agreement with the lending institution, the amount rendered can be paid at once or in installments over an agreed period.
To qualify for the title loans, you should have clear legal ownership of the property being used as collateral without the property having other liabilities. Credit history is no longer critical since tangible assets back the loan. The lending company has the authority to transfer the property ownership to company to cater for the loan in case of a default, even though most lenders are reluctant to use this approach whenever possible and that why they tend to offer a delayed repayment plan where the debtor is only required to pay only the interest for a month or two before he is in a position to clear the outstanding amount.
Differences Payday and Title Loans
Title loans are considered as secured loans because they are backed by material assets, while payday loans are considered as unsecured. A company lending title loans is more specific with the loans, even though there is a likelihood that the asset may be stolen or damaged before the loans come due. When it comes to a payday loan, the amount borrowed should be returned in person upon the agreed date, even though the lender can cash the check if the borrower defaults to settle the loan. The lender can also be subjected to risks in case the borrower loses his job or resigns voluntarily.
Another key difference between the payday loans and the title loans is the repayment period. Payday loans are short-term and are issued for a period not exceeding two weeks and should be paid in full during that time, and that’s why they are proportional to the amount stated on the previous paycheck. On the other hand, title loans have a more extended repayment period lasting from weeks to months, and refinancing in certain circumstances is possible. This is an indication that title loans are somewhat more extensive and can be used to finance higher cash demands.
The other key difference between these types of loans is that title loans attract low-interest rates when compared to payday loans. Title loans can help you to repair your credit, unlike payday loans, they facilitate this by reporting to the credit bureau, helping you to improve your credit while maintaining your current loan.
The discussed above are the differences between payday loans and title loans.