Payday Loan vs Title Loan

When you’re in the market for a loan, you may want to conduct a bit of research ahead of time to find the best type of loan for your situation.

Two common types of loans are payday loans and title loans. Both can be quick and useful in many situations but they do have their differences and it’s important to choose the option that best fits your needs. If you want to learn more about title and payday loans continue reading below.

Payday Loans Vs. Car Title Loans. What is right for you? Select the kind of loan that fits your needs.

What is a Title Loan?

When you’re in the market for a loan, you may want to conduct a bit of research ahead of time to find the best type of loan for your situation.

Two common types of loans are payday loans and title loans. Both can be quick and useful in many situations but they do have their differences and it’s important to choose the option that best fits your needs. If you want to learn more about title and payday loans continue reading below.

Title loans are available in several states across the U.S. and the laws and terms of these loans vary based on the state where you are residing. Most lenders don’t base their loan approval solely on your credit score, which makes title loans desirable to many customers who have a low or no credit score at all.

What is a Payday Loan?

Similarly to title loans, payday loans are also considered secured. But instead of using your vehicle as collateral, these loans are secured by a postdated check or debit authorization. These loans are meant to be short-termed and provide quick relief until your next payday.

The interest rates for payday loans are also considered high and vary, amongst other things, on the state in which you reside and the lender you choose. These loans are available in much more states when compared to title loans.

Payday Loans, Title Loans, and Credit Scores

One of the most common questions people ask about these types of loans is whether their credit score affects their chances of approval. When you go and apply for a traditional loan, such as the one you get from your bank, it is usually required that a credit check be performed. In those cases, your credit score is actually one of the main criteria for approval of the loan. However, when it comes to title loans and payday loans, your approval for funds does not necessarily depend on your credit score*. This makes these loans ideal for people who have less than good credit or don’t have a credit score at all.

Another important question in this regard is whether these loans affect customers’ credit scores. The answer to this is a bit complex as different lenders have very different practices. But for the most part, you will be able to find lenders who do not report your loan to the credit bureaus. In other words, this means that your credit score is unlikely to get affected by your payday or car title loan.

*Car title loans take multiple factors into consideration for a loan approval: This includes your ability to pay your loan, the equity value of a qualifying vehicle, as well as a source of income to pay monthly on a car title loan.

Pros and Cons of Title Loans

Title loans have many pros and cons to them that are important to know about before borrowing any money. One clear advantage of getting a title loan is the fact that you get to keep driving your car. Put differently, you use your car to secure the money you need but you still use it for whatever your needs are. In addition, car title loans usually have a fairly easy application process, allowing you to get your money fast and get on your way with life. For the most part, these loans don’t have prepayment penalties and customers with any credit score can apply.

There are some disadvantages to title loans though. One major thing to remember is that these loans carry high interest. That means that you may end up paying a much larger amount back compared to what you initially borrowed. Also, since your vehicle is used as collateral there is a possibility of losing it if you cannot pay it back in accordance with your loan agreement.

All in all, vehicle title loans can be great for emergencies but do carry their risk so it is crucial that you know what you are getting into and verifying that you can afford all the payments and terms laid out in your contract.

Pros and Cons of Payday Loans

Similar to the way it is with title loans, there are many good reasons one would consider getting a payday loan. These loans are super easy to apply to, with many lenders offering short applications and extremely quick funding. Payday loans don’t have many requirements, making it easy to get approved and get the money you need. Also, these loans are not based solely on your credit score, so they are open to many customers who may be quickly rejected by banks and traditional lenders.

Payday loans do have their disadvantages, however. These are very high interest loans, making them expensive and tough to pay back if you don’t have the funds. Another disadvantage that many customers bring up is that payday loans don’t help build up your credit. These loans are meant as a short-term and last resort solution for your finances and this is important to remember.

Which loan is right for me?

As you can see by now, there are many advantages and disadvantages to both payday and title loans. Your choice of loan will depend on your circumstances and demands. The biggest difference is the demand for collateral and the length of each of these loans. For most customers, these criteria will determine whether they choose a payday loan or a car title loan.

Regardless of your choice, the most important thing to remember is that these loans are meant for emergencies and should only be used if you are certain that you can pay them back properly. 5 Star Car Title Loans is a reputable company with thousands of customers. We are happy to help you learn more about these loans and assist you in figuring out which loan is the right fit for you.

If you want to learn more, give us a call today at 888-309-0994