When a financial crisis hits you, it can be quite hard to determine the type of short-term loan you need to address the situation and start picking up the pieces. Keep in mind that your only concern at such a time is how you will find some quick cash to fix the situation.
The two common options that most of us tend to think of are car title loans and payday loans. While the two types of loans have many similarities, they are actually different, and choosing one over the other can be quite difficult.
Typically, you will need to assess your situation and compare a few features to find the right choice for you. In this post, we discuss some of the key differences between the two. Read on to find out everything you need to know.
Understanding Payday Loans
Payday loan lenders usually offer short-term loans in exchange for a post-dated check for your next payday. Typically, the amount of the post-dated check includes the loan amount plus accrued interest.
For instance, you can write a check of $110 to receive a loan of $100 from an online lender such as Prets Rapides. If the post-dated check fails to clear and you don’t make any arrangements to clear the loan balance, the lender rolls your loan into another two-week cycle and may request you to pay additional interest.
The most interesting part of a payday loan is that it is an unsecured debt, which means that the borrower has no collateral to lose if the check fails to clear.
However, any good borrower wouldn’t want to get into a tug of war with a payday loan lender because the time wasted could be worth much more money.
Understanding a Car Title Loan
Unlike payday loans, car title loans are usually secured loans that use your car’s equity as collateral for the loan amount you need. With a car title, you can borrow between $1,000 and $50,000, depending on the amount of equity that you have in your vehicle.
Different types of vehicles can be put up as collateral, including motorbikes, work trucks, recreational vehicles, SUVs, and many more. The good thing about car title loans is that you continue to drive your car while servicing the loan.
The only thing that the lender does is to put a lien on your vehicle registration as security. Typically, the loan terms for car title loans are longer compared to payday loans.
Payday Loan vs. Car Title Loan: Which One Is Better?
Classifying one or the other as a better option can be quite difficult because the two types of loans are designed to serve you in different situations. If you are in a tough situation and don’t have any collateral, then a payday loan might be your best option.
However, the interest charged on payday loans is relatively high since there is no collateral to serve as security.
If you are looking for an option that provides you with a relatively longer repayment period with a slightly lower interest rate, a car title loan might be the best option for you. The downside of car title loans is that you risk losing your vehicle if you default on loan repayment.