Anyone attempting to find a financial loan will come across the words “title loan” or “payday loan” and while the two types of loans may sound similar, they’re very different and knowing the difference can make a big difference in your life. Understanding what each requires will help you make an informed decision about which type of loan is best for you. Here’s the difference.
Objective
The goal of a Title Loan is to help you meet your urgent and unforeseen financial needs. As title loan guide at FDR or any respectable guide will tell you, these are generally used to pay urgent medical bills, do last minute home repairs, or pay off large debts.
Instead, Payday Loans are designed to help people on low incomes or those who may need a few hundred extra pounds to cover them until payday arrives. Generally, it’s used to pay rent, pay for vacations or even weddings.
Loan amount
For Ownership Loans, the loan amount is generally up to 75% of the value of your car. In most cases you can earn up to $35,000 but it varies from state to state. Payday loans have much smaller maximum limits, only $1000 to $1500.
Payment Terms
Title Loans haven’t any fixed fees or monthly payments. It is not related to your salary so you are required to pay back the loan in full on an agreed date, normally one month later.
Payday Loans are repaid by direct debit on the same day every month. To make sure that borrowers never miss a payment, there are strict rules to follow when collecting money from your account and budgeting for other bills at the same time. Because of this, there are often additional fees if payday falls on a weekend or vacation.
To illustrate, a Title Loan paid off in one month will have an interest rate of around 22.9% and if the term is extended to two months you can expect to pay 27.9%.
For Payday Loans, there is generally a fee before you sign agreement so it’s important for borrowers to read all documentation thoroughly. For example, additional fees for NSF payments (inadequate funds) or payment days that fall on weekends or public holidays may be charged in addition to fees for each day after the loan due date that isn’t paid. On average this will equal £15 per £100 borrowed and if not paid by direct debit a monthly fee will apply instead which is generally £12 per £100 borrowed until fully cleared.
Appropriateness
The Title Loan requires your car to be collateral against the loan as stated. Usually, only cars qualify as collateral for a Ownership Loan but some lenders may take other types of vehicles such as motorbikes, scooters or even ATVs as well. If your car doesn’t meet the loan criteria, you can try to make a deposit by paying an upfront fee that can be used as collateral. Payday Loans don’t require collateral because the borrower must be employed and their salary must be enough to cover all expenses until payday (or longer). They are also subject to an affordability assessment and must be capable to prove they’ve a history work and earn more than a certain quantity.
Document
Even although both loans require the same documents, the lender may still reject your application even if you meet all of their criteria if you can’t provide proof of income for example. This means that you’re going to need more effort when applying for a payday loan than with a Title Loan. You also need to consider how long it will take to complete the documentation process which varies from one lender to another, so be sure you account for enough time before it runs out.
Title Loans is designed to help you get the money you need quickly, conveniently and simply. They do not do credit checks so anyone can apply, no matter how bad your credit score is. Of course, this means that there will be additional fees that will vary depending on the state or lender, but an affordability assessment can stop customers from over-stretching. Payday loans are supposed to help you till your next payday. They usually have shorter repayment terms and this means the borrower has a really short time to pay off the loan. This can be a serious disadvantage as borrowers must remember that they will incur additional fees for late payments if they miss the deadline.
