In times of financial emergency, most individuals will have difficulty in trying to obtain a conventional loan from their financial institution. As a result, many turn to alternative forms of lending such as payday loans and car title loans. Both have their advantages. Here is a look at both.
A payday loan is an unsecured loan that is based upon an individual’s monthly income. As long as you have not defaulted on payday loans in the past, getting approved for one is relatively easy. Borrowers can visit a physical location or apply for a payday loan online. If visiting in person, the application process is quick and the borrower receives his or her money the same day. Online lenders will deposit the funds the next business day. In both cases, borrowers leave a post-dated check to cover the future payment. The typical loan period is only two weeks, the same as most employers’ pay schedules.
Failure to repay a payday loan will result in the debt being sold to a collection company. The bad debt will show up on the borrower’s credit report. Most payday loans are for sums of money between $300 and $1,000 and are used for emergencies.
Car Title Loans
A car title loan is a secured loan where a vehicle is used as collateral. Most lenders, like Embassy Loans of Florida, prefer that the vehicle is paid off and that it is 10 years old or less. Prospective borrowers fill out an application and present proof of identity and the title to the vehicle. The lender determines the value of the car or truck and writes the loan agreement.
Title loan companies will only allow individuals to borrow roughly 30 to 50 percent of what a vehicle is worth. If the loan goes into default, the lender can take possession of the vehicle and then sell it to recover most or all of its losses.
Like payday loans, car title loans do not require a good credit history. The loan is not based upon an individual’s credit and the vehicle provides collateral if the borrower fails to repay. As long as the payments are made on time, borrowers get to continue to use their vehicle.
Car title loans are usually taken for sums of money larger that payday loans. The average car title loan nets a borrower approximately $3,000. The terms of repayment are also much longer than the average payday loan.