The main difference between a payday loan and a title loan is that whilst a payday loan is designed to last until your next payday, a title loan requires you to hand over your vehicle title as collateral.
When you are receiving your title loan, it’s likely that you lender will hold on to the title to your vehicle, but you’ll still be able to drive it.
You can get title loans with bad credit, providing you hold the title to a vehicle beforehand. Title loans usually have lower interest rates than payday loans, and you can usually borrow between 25% and 50% of your vehicle’s total value with a title loan.
- The main difference between a title loan and a payday loan is that a title loan requires you to post your vehicle as collateral against the loan.
- Title loans are permitted in 17 states across America, including Texas, Georgia and Illinois.
- The amount of money you can borrow on a title loan will be based on the value of the borrower’s vehicle.
- Be wary – 1 out of 6 borrowers have their cars repossessed when they can’t meet the repayments on their title loans.
- Borrowers who want quick and easy access to a short-term loan without having to put a valuable asset at risk of repossession may be more suited to a payday loan.
What Is A Title Loan?
Title loans are a secured loan against the borrower’s vehicle. With title loans, as your vehicle is used as collateral, this will determine the amount when you want to borrow money today. According to the figures, there are 2 million individuals that use their car or truck to secure a title loan per year.
A title loan is a short term loan. Whilst you are receiving your title loan, your lender will likely hold the title of your vehicle. You’ll still be able to drive your vehicle, but its title will be in your lender’s name. Your vehicle’s title will remain with your lender until your title loan is fully repaid. This essentially makes it safer for your lender to lend you money.
In many cases, the borrower will repay the title loan as a lump sum, but this isn’t the case for all title loans, and your repayment details will depend on your situation.
Which States Allow Title Loans?
Title loans are currently allowed across 17 states in the US. Therefore, your ability to secure a loan will depend upon your location.
These are Georgia, Idaho, Illinois, Alabama, Arizona, Delaware, Mississippi, Missouri, Nevada, South Dakota, Tennessee, Texas, Utah, Virginia, Wisconsin, New Hampshire and New Mexico, with some 4 other states technically allowing title loans through loopholes.
It is estimated that there are almost 8,000 licensed title lenders across these states.
Can I Get a Title Loan With Bad Credit?
Yes, in many cases you can still get a title loan if you have bad credit. You would need to hold the title for a vehicle though that can be used as collateral in case you fail to repay.
As the loan is secured against a vehicle, even individuals with bad credit can apply for and receive a title loan. This is because the lender is safe in the knowledge that your loan will be repaid one way or another, even if you can’t manage keeping up with your repayments.
Therefore, many title products which classify as loans with no credit checks. Even so, you should have a plan as to how you will repay your loan. Even though a credit check may not be carried out, it is equally important that you pay your loan back. Failing to do so could lead to the loss of your vehicle, long term, alongside other consequences.
How Much Money Can I Borrow With a Title Loan?
You can borrow between 25% and 50% of your vehicle’s total value with a title loan. Title loan amounts depend on the value of a vehicle, so title loans are offered from as little as $100 to over $10,000. It’s all dependent on the total value of the vehicle that will be used as collateral.
What is a Payday Loan?
A payday loan is a type of loan whereby the borrower has access to a relatively small sum of money which is designed to last them only until their next payday.
It is supposed to help those who have not budgeted for unexpected circumstances, for example those who have emergency medical bills to pay. It is not designed for frivolous spending or any non-emergency payments.
What Is The Difference Between A Title Loan And A Payday Loan?
The main difference between these types of borrowing is that a title loan is secured, whereas a payday loan is unsecured.
What this means is that title loans will use the title of a borrower’s car as collateral, whereas payday loans won’t have any collateral.
The amount of money you can borrow on a title loan will be based on the value of the borrower’s vehicle. Title loans will also typically come with lower interest rates in comparison to payday loans.
However, with this borrowing method you also risk losing your vehicle if failing to keep up with repayments.
Is A Title Loan Or a Payday Loan Better For Me?
Title loans and payday loans are best suited to different types of borrowers. For example, a title loan could work well for someone who has a car to use as security and wants to borrow a larger amount than a payday loan would necessarily allow (borrowers able to get loans of $10,000 or more depending on the value of their vehicle).
However, for those who want quick and easy access to a short-term loan without having to put a valuable asset at risk of repossession, a payday loan may be more suitable.
Ultimately, the best way to borrow will depend on your circumstances and individual needs. When looking to find the best loan for you, it’s good to explore a variety of different options, helping you make a more informed decision on how and where to borrow.