If you need cash fast for emergency expenses, you may be considering a few different types of loans, including title loans, payday loans, and personal loans. But what’s the difference between a title loan and a personal loan or payday loan? Find out now!
Your Credit Score Doesn’t Matter for Title Loans
When you apply for a title loan, your credit score doesn’t matter. In contrast, most personal loans from banks and online lenders primarily rely on your credit score to determine if you qualify for a loan. If you don’t have good credit, you may not qualify for a loan.
The same is true of some payday lenders, as well. Without a reasonable credit score, you might not be able to qualify for a loan. This means that title may be a good option for you, even if you have bad credit.
Title Loans Are Short Term Loans with Relatively High Interest Rates
Compared to personal loans from a bank, car title loans have a much higher interest rate. Often, this may be up to a 300% Annual Percentage Rate (APR). This is because title loans are usually considered to be risky for lenders, so they have to charge a lot of interest to ensure profitability. Title loans are also usually issued for 1 month, though some lenders offer longer lending terms.
Payday loans usually have a similar interest rate but are for an even shorter term of around 1-3 weeks. In contrast, traditional personal loans usually have an APR of around 30% and can be taken out for multiple years.
You Have to Put Your Car Up as Collateral for a Title Loan
This is the biggest difference between title loans and other types of loans like personal loans. You have to sign over your car title to the title loan company to get a title loan.
What this means is that you put your vehicle up as collateral. If you do not pay, the loan company is legally allowed to take your car and sell it, then apply its value to your outstanding loan balance. This is why a credit check is not required — your loan is “secured” by your car.
For this reason, you should only take a title loan if you are certain that you will be able to repay it and build car equity. If you can’t repay your loan according to your provider terms, you may end up losing your vehicle.
Know the Differences Between Title Loans and Other Types of Personal Loans!
A title loan can be a decent way to get emergency cash, but it should always be a “last-resort” option. Putting your vehicle up as collateral is risky, so you should only take out a title loan if you’re sure you can repay it, and if you really need the cash to cover an unexpected expense.
