Car Title Loans vs. Payday Loans: Which Is Best for You
You need money fast, and you’ve narrowed your options to car title and payday loans. They both help in tight financial situations, but one might be better for your current situation. Don’t stress over the decision, here are the pros and cons of each.
Car Title Loans
After you purchase a car and pay off the loan completely, you end up with equity. Once that car loan is paid in full, the value of the car is essentially money in your pocket. Many think the only way to tap into the car’s value is by selling it, but there is another way.
During a car title loan, you borrow money against the equity in your car by putting that car up as collateral. During a car title loan, you make a promise that you will repay the money. Until you do, the title of the car is held by the car title loan company.
Many car title loans require repayment of the loan in 30 days, or one month. You may be able to roll the loan into a new loan if you are short when the repayment day comes, but you must understand that the interest rate and fees increase each time you do this. To apply for a car title loan, you must provide your title and identification.
Benefits to car title loans are the longer loan terms, not having to sell your vehicle, and a competitive industry that makes it easy to shop around for the best interest rates and fees. There is often a limit to the amount you can borrow, with some companies, the maximum if $2,500. This will vary depending on your state’s laws.
Payday loans do not require any collateral. You borrow the money with a simple promise that you will pay the money back. Most payday loans require repayment in two weeks. The goal is to pay it back on your next payday.
Payday loans have many benefits, but there are also downfalls. When borrowed responsibly, you gain the cash you need in a hurry. Many online payday loans are approved within minutes, and you have the money in your bank the next business day. There are downfalls too. Interest rates with payday loans can be very high, especially if you roll the payday loan into a new loan rather than pay it back as promised. Some states limit the amount you can borrow with a payday loan. You might be restricted to a maximum of $500, which can make it hard to get the amount you need for an emergency repair or unexpected bill.