The Differences Between Personal, Payday, and Title Loans

3 choicesFor those in need of help with their financial situations, there are several loan options available including personal loans, payday loans, and title loans. While many people may think that all loans are the same, there are some distinct differences between these three types. Let’s take a look.

 

Personal Loans

 

Personal loans, or unsecured loans, are those made by a financial institution or individual to a borrower with interest rates that range usually between 5 and 30 percent with terms ranging from 12 to 60 months. The interest rate and terms of the loan are dependent upon a borrower’s background, including credit history, work history, and amount of assets. The lender will ask for documentation from the borrower that includes a credit report, bank statements, pay stubs from a job, and more. The loan goes through an underwriting process where the lender will examine all of this information and determine whether or not the loan gets approved. If approved, the borrower will receive his or her money and begin repaying the loan in monthly installments.

 

Payday Loans

 

Payday loans are a short term loan where a borrower writes a personal check to the lender for the amount they wish to borrow plus the loan fees. To borrow $400, for example, a borrower may have to write a check for $450. The borrower will receive the $400 plus the terms of the loan. The loan usually needs to be repaid within a week or two. The borrower’s next paycheck acts as the collateral for the loan. To take out a payday, a borrower needs to prove that they have a job. There are no lengthy credit checks and, typically, a payday loan is completed within an hour or two.

 

Auto Title Loans

 

Companies like Florida’s Embassy Loans provide borrowers the ability to use their vehicle as collateral for a loan. Borrowers turn over the title to their car or truck in return for a short-term loan. Borrowers need to prove their identity and residency and must have a clear title. There are no credit checks since the vehicle is acting as collateral. Lenders must make sure that the title matches the vehicle and they will assess the value of the car or truck to finalize the loan agreement. The entire process usually takes between 24 and 48 hours from beginning to end. An auto title loan is fairly easy to obtain and a great way to get someone out of a short-term financial bind.