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When you need fast cash, whether for an urgent bill or another need, two common options are online car title loans and online payday loans. Both provide quick access to funds, and both can have short repayment terms. However, there are some rather significant differences to consider. Here, we’ll take a look at online title loans vs. online payday loans to help you understand your options.
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What are Title Loans?
A title loan is a type of secured loan that uses your vehicle, registered in your name, as security for the loan. In addition to owning a vehicle with sufficient value, you must also have a steady income.1 You retain ownership of your vehicle throughout the loan term and can continue driving it as usual, as long as your account is current. Vehicle secured loans are generally better for those who can pledge cars or trucks as collateral, and need more money than payday lenders usually offer.
What are Payday Loans?
A payday loan is an unsecured, small-dollar loan that’s typically due in full on or around the borrower’s next payday. In addition to your paycheck, repayment proceeds may come from other income, such as benefit payments. Depending on your state, payday loans can be available online or through brick-and-mortar lenders. Payday loans are usually better suited for smaller-dollar borrowers who need a few hundred dollars to tide them over until they get their next paychecks.
How Do Online Title Loans Work?
Online auto equity loans make it convenient for you to apply from the comfort of your home. Borrowers must be at least 18 years old and live in the states in which they are applying. Poor credit is not necessarily a barrier to getting title loans.1
Typically, the lender will assess your income and the amount of equity you have in your vehicle. The assessment is based on documents you supply, as well as the make, model, year, mileage, and overall condition of your automobile. Lenders use this information to determine whether to approve your application and how much to offer you.1
With auto title loans serviced by LoanMart, you can often borrow up to $15,000.1 This form of borrowing is also very flexible in that you can borrow whatever amount you wish, within your approved loan range.
Once you’re approved, and all required forms have been reviewed and signed, the lender will disburse your cash and place a lien against your car’s title. In some states, you will also need to supply a DMV form granting the lender the right to place the lien, before the cash is disbursed. The lien will be removed once you pay off the loan.
Depending on their policies and state laws, many vehicle-secured lenders will allow you to extend, or roll over your loan if you need more time to repay it. It’s important to note however, this will typically add charges such as processing and origination fees to the outstanding balance. This can increase the amount you owe, which could make your loan more expensive to repay.
Online car title lenders generally require minimal documentation to fund loans. You’ll need to provide a driver’s license or other government-issued photo ID, along with proof of your address, such as a utility bill or a signed rental or lease agreement. Proof of your income, such as pay stubs will also be needed. You’ll also need to supply clear photos of your vehicle, inside and out, as well as of its VIN and odometer reading. Online applications can be completed in around five minutes, and many applicants are approved in under an hour. You can have your funds as soon as the next business day – or even sooner.1 3
How Do Online Payday Loans Work?
While qualifications vary, most payday lenders require you to be 18 years of age or older and have a valid photo ID. You typically need to live in the state in which you apply and provide proof of income. Depending on the state, some lenders may require a minimum monthly income amount. An active bank account, as well as a Social Security Number or Individual Taxpayer Identification Number is also needed. An active email address and a valid phone number are usually required as well.
Many states set limits on payday loan amounts, which are typically around $300 to $500 and sometimes up to about $1,000. Loans are typically required to be repaid in single payments, on or close to the paydays immediately following their acceptance. Some states permit lenders to rollover payday loans if borrowers experience difficulty repaying them by the due dates. However, in doing so, lenders typically levy new finance charges as well as fees as compensation for extending due dates.
Payday loan fees typically range from $10 to $30 for every $100 borrowed. Charges of $15 per $100 for a two-week loan are common, which equates to average APRs of around 400%. Some lenders even have rates exceeding 600% where state regulations allow.
Before lending you cash, many payday lenders will require you to write a check for the full repayment amount, including fees. Alternatively, you will be asked to authorize the lender to electronically debit the funds from your financial institution or prepaid card account. If you don’t repay the loan on or before your due date, the lender can cash the check or electronically withdraw money from your account.
Here’s how a typical payday loan works:
- You need to borrow $500. The lender offers you a two-week loan.
- The fee is $15 per $100 borrowed.
- The cost of the loan will be $75: $15 x 5 = $75.
- You ‘ll give the lender a $575 check, or authorize them to debit your bank account.
- The lender gives you $500 in cash.
- Two weeks later, you’ll owe $575.
- Depending upon how you agreed to repay the loan, the lender will either debit your bank account, cash your prewritten check, or take a cash payment.
The Key Differences Between Title Loans and Payday Loans
While payday loans and title loans both provide quick cash, their terms and the associated risks differ. Before pursuing one type of loan over the other, you should consider the key differences between the two. Here’s what you need to know:
Payday Loans
- Unsecured – no collateral required
- Interest rates can reach 600% APR, with an average of about 400%
- Depending on your state, you can typically borrow between $50 and $1,000, with standard loan amounts of $300 to $500
- Typical terms are two to four weeks
- Payday loans can be debt traps, in which ever increasing fees and interest charges are levied
- Payday lenders sometimes employ aggressive collection tactics
Title Loans
- Secured by the title to your automobile
- Interest rates tend to be significantly below payday loan interest rates
- Depending on the lender, your income and your vehicle’s value, you can qualify for significantly larger loan amounts compared to payday loans
- Typical terms can range from 15 to 30 days with some lenders to several months with others
- The lender can seize and sell your vehicle if you default on the loan
Is an Online Title Loan Right for You?
If you are confident you can make timely payments, and you need more than a few hundred dollars, borrowing against the title to your automobile may be your better option. Car title loans generally offer more flexible repayment terms than payday loans. This can be a benefit when you’ll need more time to repay the loan as payday loans have shorter repayment windows.
If you believe car collateral borrowing will serve you best, the easy online application process for loans serviced by LoanMart goes like this:
- Complete a quick online application, or call 855-422-7412 to apply with a loan officer
- Upon approval, submit the required documents1
- Review and sign your loan agreement
- Funds are released once your contract is signed and your title has been mailed
Conversely, a payday loan may be what you need if you don’t have a vehicle you can offer as collateral, or you only need a small loan. However, if you need cash fast, own a vehicle – and can make your payments as agreed – borrowing against your car may be a more affordable solution.
Apply for a title loan serviced by LoanMart today, to see how quickly and easily you can get the cash you need!
