Loans vs. Payday Loans: Differences & Similarities
Unexpected financial emergencies are a fact of life. When situations come up and you’re short on funds, two quick-cash options are available: title loans and payday loans. Payday loans may be the more popular loan product, but both types of loans deserve attention. Understanding the differences and similarities between title loans and payday loans is your first step to becoming an educated borrower. Educated borrowers are more likely to make a decision on a loan product that is best suited for them when they do run into a financial conundrum.
Take a look at the primary differences and similarities between title loans and payday loans.
Most loan companies want to see your credit history before they agree to offer you a loan. However, title and payday loans are different. You offer something in exchange for the money you need for both types of loans. Title loans involve offering your car for collateral, and payday loans involve writing a post-dated check or committing to an automatic debit when the loan is due.
Because you offer more than just your word that you will pay back the title and payday loans, most lenders do not run a credit check before they decide if you are qualified to receive money. Getting a loan of either type tends to be easy even if you do have a poor or lacking credit history, which is partly why both loan types are so popular.
Title Loans Typically Get You More Money Than Payday Loans
One major difference between title and payday loans is how much money you are able to get. All types of loans are set forth according to specific laws and guidelines of the state. Payday loans have a maximum amount a borrower can accept in the state of Tennessee, which is $500.
Title loans don’t necessarily have a maximum allowed by the state. Instead, you are offered a loan based on either the value or equity of your vehicle. Most title loan providers will offer you a loan amount between 25 and 50 percent of the car’s overall value.
Title and Payday Loans Have More Relaxed Applicant Requirements
Beyond the fact that both title and payday lenders will work with people regardless of their credit, both types of loans are generally easier to get overall than traditional loan products. Payday loans usually require that you have a steady form of employment and a bank account. Title loans usually only require that you have a vehicle with a title that is paid for.
Title Loans Can Have Even More Relaxed Payment Requirements
Both title and payday loans are considered short-term loan products, meaning they have to be paid back in a shorter period than a usual loan would require. However, title loans tend to come with more relaxed payment requirements than payday loans.
If you take out a payday loan, the full amount that you borrow, plus interest, will be due on your next date of pay. With a title loan, you are usually given the option to make a short series of payments toward the loan and interest charges until the loan is paid off.
Overall, both title loans and payday loans have their advantages. In a lot of ways, the two loan types are similar, but there are differences as well. If you are interested in a title loan, reach out to us at Tennessee Title Loan for more information.