Payday loans and title loans are convenient ways for people with bad credit to borrow money to cover emergencies or short-term financial obligations. They use these loans to help tide them over till their financial fortunes improve. These forms of loans for bad credit are flexible, have easy application procedure and fast processing times.
Processing a payday loan typically involves the borrower writing a postdated check which covers the loan amount in addition to the interest plus attendant fees and charges. On the loan due date, the lender will collect the balance. In case the borrower is unable to pay on this due date, he or she can opt to roll over the loan, which will also mean more fees. Other options include personal loans that offer monthly payments. To get approved for good loans for bad credit you must be employed and have the means to repay the loan. These loans can be obtained online but have interest rates higher than traditional loans. However, they are less than payday loans.
Title loans (also referred to as title pawns in several states) are a fast and convenient method of getting cash for those who own a motor cycle or car. Getting this loan is easy so long as the borrower’s title to the motor vehicle or motorcycle is lien-free-meaning it can be used as collateral for the loan. A lien-free title means the borrower owns the car outright, and there are no judgments or outstanding loans against it.
There are several reasons why a payday loan is preferable to a title loan:
Poor Regulation and Ethics
The payday loan industry has been widely studied and heavily regulated in many states, as compared to the title loans. The effect of this as that most payday lenders are more robust, there are better options for online loans for people with bad credit. Better established and applies better ethics and business practices than title loan lenders. For instance if the borrower’s car is valuable and easy to sell, most title loan lenders will easily start the repossession process in the event of the slightest delay in repayment. Some lenders even charge repossession fees even though they are not allowed to. This is because the title loans are mostly over secured since borrowers will only be loaned up to 50% of the car value. When the borrower defaults the lenders sell the car and retain all the profit. Some lenders may even prefer to take the borrower to court instead of repossessing the car. The court costs and finance charges are then tacked on top of the loan amount due.
The payment options for title loans are more onerous than for payday loans. Some require a borrower to repay in a single lump sum or over several months-while others combine the two payment plans. A consumer group study showed that in some states like Oregon, Ohio and Tennessee, borrowers can only repay in lump sum. The study also reported that on average, lump-sum payments ate up to 50% of the gross income of the borrower, compared to 36% for payday loans.
Change of Lifestyle and Stress
With payday loans, the borrower’s lifestyle does not lose his or her way of life in case of default. The payday borrower will still have somewhere to live and a means of getting to work even in case of default.
On average a normal payday loan is about $350 while a title loan is $1,000. A title loan is riskier than a payday loan which is normally secured by a salary check. The income of the borrower is limits the loan amount at a given time. This makes it easier to repay the payday loan promptly.
Conversely, title loans do not take into account the lenders ability to pay since they are secured by the car. The risk of defaulting on the loan which leads to repossession of the car is therefore much higher. In a nut shell a title loan can get the borrower into a debt cycle since repossessing the car means the borrower’s ability to repay will be severely reduced when he or she cannot go to work efficiently.
The threat of repossession due to the inability to repay a title loan has vexing and harmful effects on the borrower’s mind, health and relationships. The possibility of default and repossession will weigh heavily on the borrower, leading to stress and low productivity when carrying out day-to-day activities. For people looking for new or used car loans for bad credit many companies like RPTIA have dozens of offers that specialize in helping people with bad credit.
Regardless, as with any loan you should always look at the terms because many companies have very expensive fee’s.
More Fees and Charges
Title loans typically include more fees than pay day loans and these accumulate quickly. Generally, for payday loans, the extra fees are not hidden from the borrower and are easier to calculate. Title loans incorporate a much wider range of fees. Such additional fees may include repossession fees, lien fees and origination fees. Some lenders also incorporate a road assistance program that borrowers can buy for extra fees. There are some lenders who go as far as making this road assistance program mandatory. The total cost of such fees can range from $80 to as high as $115 for a loan of $500.
To sum it all up, if one needs fast and convenient money, it is better to get a payday loan instead of handing over a car title. Remember to be thrifty with your loan and make sure you are comfortable with the repayment terms.