Securities and Payday Loans: An Overview
Asking if title loans or payday loans are better is like asking which disease is best to get in winter. Both loan products feature usurious interest rates, adverse terms and potentially aggressive collection tactics. A significant difference between a title loan and a payday loan is the way you can borrow and the interest rates on each loan.
Title loans usually offer lower interest rates (for example, an annual percentage rate (APR) of 300% versus 400% for payday loans, if you call that a deal), but also impose penalties. more severe in the event of non-payment, because the lender can take possession of your vehicle.
Title lenders typically allow you to borrow up to 50% of the car’s value, and often up to $ 5,500, but some lenders will go higher based on the vehicle and allow borrowers to take out a mortgage. loan of $ 10,000 or more.Payday lenders usually allow you to borrow a few hundred dollars.
Key points to remember
- Payday loans and title loans are two high risk loans with very little return other than quick access to cash.
- Underpaid people often have to rely on payday loans to pay for necessities between paychecks.
- Securities loans are risky because you can lose your vehicle, which serves as collateral for the loan.
- Because of the collateral, title loans allow you to borrow much more money than a payday loan.
- Both loans should be used as a last resort, and even then, with caution due to their high fees and exorbitant interest rates.
Payday lenders offer short-term cash loans in exchange for a post-dated check, usually dated on your next payday. The check amount includes the total loan amount and a finance charge. For example, you write a check for $ 115 to receive a loan of $ 100. Given a loan term of two weeks, which is relatively standard, the financing fee of $ 15 equates to an APR of almost 400%, and that assumes you are paying off the loan on time.
If your post-dated check fails to clear by the bank and you don’t make other arrangements to pay off by your due date, the lender defers your loan for a subsequent two-week period.The lender will also add another financial burden and usually assess an additional late fee or penalty. In a short period of time, you could be forced to pay several multiples of your original loan amount.
Many payday lenders prey on low-income earners and those in desperate need of cash, and often their businesses are in undesirable places, but not always. You can get around the need to get there by looking for a lender online, but it puts you at another set of risks. Some payday lender websites are nothing more than scams aimed at extracting sensitive personal information.
In some states, laws have been enacted to require payday lenders to offer extended repayment plans to those who are in financial trouble and cannot repay their loans.These state-sanctioned extended repayment plans mean you only have to pay what you owe and don’t have to borrow again, keeping the cycle of debt and fees going. .
The only good thing about a payday loan is that it is unsecured debt, which means that the lender has no collateral to seize if you are unable to repay the loan.
Title lenders offer short term loans while holding the title of your vehicle as collateral. The lender assesses the value of the vehicle and offers to lend up to a certain percentage of that value, usually 25-50%. Title loan balances can be much larger than payday loan balances, in some cases as high as $ 10,000. The typical term for a title loan is 30 days, with average interest charges of around 25%. This means that a standard title loan APR is 300%.
Like payday lenders, title lenders impose the biggest expense when you don’t pay off the loan on time. If you are lucky, the lender may offer to extend the loan for a further 30 days, charging new finance charges and usually an additional penalty.If you’re not so lucky, the lender can repossess your car and sell it to pay off your loan.
Obtaining a title loan usually requires that you show up in person since the lender must appraise your vehicle. Mobile title lenders exist but almost always charge extra fees to come to you.
Because a payday loan is unsecured, lenders have been known to use aggressive methods to collect late payments. These tactics include incessant phone calls, intimidating letters, and threats of prosecution.
Classifying one or the other as âbetterâ is fraught with pitfalls, as payday loans and title loans tend to worsen a precarious financial situation. Payday loans pose less risk of losing personal property, while title loans have slightly lower (although still very high) interest rates and allow for larger loan amounts.
If you are facing an unforeseen expense and are running out of funds, the best methods of fundraising are to sell items you no longer need, ask your employer for an advance on your next paycheck, or, if possible, to use a credit card.
While credit cards have a bad reputation for having high interest rates, their rates are only a tiny fraction of what you end up paying for a payday loan or title loan. Plus, most credit cards don’t charge any interest if you pay them off within 30 days.