Title loans and payday loans are two financial products that people use when they are looking to borrow. These can be obtained fairly quickly and easily by applying at a local lending store or even online. However, the two kinds of loans are distinctly different.
Note that both types of loans fall under a category of services known in the banking industry as alternative financial services. With that said, let us talk about the difference between payday and title loans.
About the Payday Loan
We will start with the payday loan given that it is the one that consumers are more familiar with. A payday loan is a short-term loan offered by a lender. Payday loans are considered short-term in that they generally must be repaid on the borrower’s next payday.
Applying for a payday loan is pretty straightforward. The borrower fills out an application asking for personal and banking information. In some cases, the borrower may write a post-dated check or agree to an electronic funds transfer (EFT) with the expectation that the lender will deposit the check or EFT on the day the loan is due.
One of the big advantages of payday loans is that borrowers do not need excellent credit to obtain them.
About the Title Loan
A title loan is similar to a payday loan as lenders may approve applications for consumers without requiring excellent credit. They are also similar in that they are short-term loans. What makes them different is that title loans may require some sort of collateral to secure the loan.
In order to obtain a title loan, you put up the title to your car, or motorcycle as collateral. That’s where these loans get their name. The title to your vehicle acts as collateral to secure your repayment. Should you default on the loan, the lender could repossess your vehicle and sell it.
To obtain a title loan, you would take your vehicle to the lender’s office for appraisal. If your application is approved, the lender would offer you a certain percentage of the appraised value as a loan amount. You fill out the paper work and leave your title with the lender when you go.
Now you know the differences between payday and title loans, and they are by no means the same thing. If you plan to use either one, educate yourself first. Know what you are getting into before you agree to borrow.