Car Title Loans vs Payday Loans

Car Title Loans vs Payday Loans

Which Loan is the Best Option For You?

When your savings or checking account balance isn’t enough to cover a financial emergency, having access to fast, affordable cash from a reputable lender can be a lifesaver. Short-term lending is often the only feasible option if you’ve had a few credit missteps in the past, as banks and credit card issuers may view you as too high a risk to take on a new personal loan or credit card. When money woes strike, most people turn to a title loan or payday loan to make ends meet. However, it’s important to understand title loans vs payday loans and how they work before choosing one solution over the other.

car title loans vs payday loansBreaking Down Car Title Loans vs Payday Loans

If you are wondering are title loans different from payday loans, the answer is a clear yes. Both title loans and payday loans offer a remedy to cash shortfalls for individuals who do not have easy access to other sources of lending, like personal loans or credit cards. However, that is the extent to which title loans and payday loans are similar. The difference between title loans and payday loans boils down to how the lender secures the loan.

With payday loans, the lender advances money based on the amount of your next paycheck. In most cases, you write a post-dated check or set up an electronic transfer for the amount of your paycheck and provide that to the lender. They offer immediate funding, less any fees for obtaining the loan, and once your paycheck is scheduled to hit, they deposit the check or initiate the transfer as repayment of the loan. Payday loans are typically for short periods (two weeks is the norm), and the amount available is relatively low (ranging from $100 to $1,000). The cost of a payday loan is often a flat fee based on the total amount borrowed, and, as you might imagine, payday loans require income for approval.

One clear difference between title loans and payday loans is that title loans are not secured by a paycheck, but instead use your vehicle as collateral for the loan. Depending on the amount of equity you have in your vehicle, title loans are typically available for amounts between $2,000 and $50,000 making it easier to get additional cash when you need it. An additional difference between title loans and payday loans is the repayment term; most title loan lenders allow you to repay over 12 months or more, which helps you budget more so than payday loans. In most cases, title loans are less expensive than payday loans because they represent a lower risk to the lender, but you must have equity in your vehicle to be eligible for a title loan.

Considerations for Choosing a Title Loan or Payday Loan

When money has you between a rock and a hard place, short-term loans like title loans and payday loans can help you manage through the rough patch. However, when you’re considering a title loan or payday loan to help with a money emergency, it’s important to think through each aspect of title loans vs payday loans, including the time you have to repay and what you qualify for based on your income or vehicle. And remember to work with your lender to understand the full cost of your title loan or payday loan before signing on the dotted line.

Auto Title Loans for California Residents

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