How You Choose Your Next Loan Can Have a Big Impact on Your Finances
When one is faced with a financial situation that demands access to quick cash, it can be tempting to seek funding from an organization that promises almost immediate money. Advertisements are common for payday lenders, check advance establishments, and other businesses that promise quick cash.
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The benefit of a payday loan is that you will most likely receive money quickly, though the basic terms of the loan are usually anything but advantageous. Title loans operate in a different manner than payday loans, and offer funding that is almost as quick. In fact, both loan types usually provide funding within an hour or two.
The benefits of both types of loans will be discussed to allow for a more educated decision should the need for quick funding arise.
What are the Main Differences Between Payday Loans and Title Loans?
Secured vs. Unsecured. A payday loan is an unsecured loan, meaning that the borrower need not pledge any collateral to the lender. This means that if the borrower doesn’t pay the loan back there is nothing that the unsecured lender can foreclose on, repossess, or revoke.
Title loans utilize the title to your vehicle as the collateral, making a title loan a secured loan. Because the lender has a security interest in something tangible, like your vehicle, the loan is considered less of a risk to the lender.
Interest Rates. The interest rate for any loan is typically determined by calculating a risk versus reward formula. That is, lenders are always taking a risk when lending out money – those that are less risky tend to receive lower interest rates and lower payments.
Payday loans tend to have extremely high interest rates due to the high risk and short-term nature of the loans. Title loans, on the other hand, have competitive interest rates because the loans use the vehicle as collateral.
Borrowing Limits. Most payday loans only allow you to borrow up to the amount you receive on your bi-monthly paycheck. For many borrowers, this can range from several hundred to over a thousand dollars. The majority of borrowers will find themselves able to get a few hundred dollars – not necessarily an amount that will solve all of their financial issues.
In most cases, title loans can provide up to $15,000 or more in nearly immediate funding due to the fact that the equity in the vehicle is used as collateral. Most borrowers find that the higher limits of a title loans help them achieve their short to medium term financial goals better than a payday loan.
Repayment Terms. Payday loans are just that – money designed to hold a borrower over until their next paycheck. For some, this might be an adequate amount of time to take care of their specific financial issue.
For most, the additional flexibility afforded by a vehicle title loan makes sense. Most title loans offer terms from six to twenty four months, so the payments tend to be affordable and budget-conscious.
Make the Right Choice For Your Financial Future!
In the end, vehicle title loans make sense for those borrowers who currently own a car or truck that is paid off or nearly paid off and need access to quick cash. Payday loans can also provide money in a matter of minutes, but the amount of cash that is available is typically far less than that afforded by a title loan.
Interest rates also tend to be much higher with payday loans, and the typical two-week turnaround time of the payday loan doesn’t give the borrower much time to take care of their financial situation.
With anywhere from six to twenty four months to pay back your title loan, the added flexibility of a longer term means lower payments and an easier time fitting the new loan into your budget. There may be a time and a place for payday loans, but a vehicle title loan is clearly the winner for the borrower seeking quick cash at a competitive rate.
Other than these two loans, you may also wish to know about how you can get loan from Costco Ameriprise auto loan.
