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Why Payday Loans are Better than Car Title Loans

By Edited Aug 16, 2016 0 0

Payday loans are an expensive way to get short-term cash, but there's something even worse--car title loans. Payday lenders offer loans lasting only two to four weeks, or until your next paycheck. If you need money immediately for an emergency and don't have a credit card or other way to borrow it, a payday loan is one way to get the money. However, it will cost you around $20 to $30 for every $100 you borrow.

That's expensive, and it only gets worse if you aren't able to pay the loan back on time and are faced with other fees.

But car title loans have all the bad points of payday loans, without any of the good points.

A car title loan is a secured loan, using the value of your car as collateral. Your car needs to be fully paid off, or very close to it. You apply for the loan, usually at a local storefront title loan company but sometimes you can start the application online. The lender inspects the car and offers a loan based on a fraction of the value, similar to a pawn shop. A typical amount is half the wholesale value of the car.

Unlike a pawn shop, though, you don't have to actually leave the car with the lender. All you need to do is hand over the title and a set of keys. If you don't have the title, you can't legally sell the car (at least not easily), and if they have a set of keys and you don't pay, they can repossess the car easily, so that's all they need. The lender will give you the money, and you'll need to pay it back within a certain amount of time, a few weeks or a few months.

The problem with payday loans is that the expenses are high for the short amount of time you get to keep the money, but car title loans are just as expensive. If figured on the basis of an annual percentage rate, like credit cards, mortgages and other loans normally are, the interest rate of a car title loan might be several hundred percent. So there's no advantage there.

But here's what's worse. If you can't pay back a payday loan, the lender can hire a debt collector to call you and can even sue you and win. But while that's going on, you can still keep your car so you can get to work and hopefully earn enough to pay the loan back.

If you can't pay back a title loan, the lender can take your car. Think how dependent you are on your transportation. If you live in an apartment instead of owning a house, your car may be the single most valuable thing you have, but more importantly, it's the thing you need not only for everyday shopping and convenience, but for getting to work.

When you take out a car title loan, you're putting your car at risk, so think carefully before pledging such an important asset. Make sure you can pay the loan back, and look for cheaper alternatives if possible, or at least alternatives where you don't have to hand over the title and a set of keys to your car, unless you're absolutely sure you can pay the loan back.



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