If you’re in a cash crunch, installment loans and title loans are two options that may help.
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- Min. Loan Amount: $500
- Loan Term: 9 to 36 months
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Installment loans vs. title loans: How do these loans differ?
- A title loan allows you to borrow money by designating your car as collateral. This type of loan is usually due within 30 days or a few months.
- When you take out an installment loan, you borrow money that you pay back in monthly payments. This type of loan is usually extended for longer than a title loan — typically paid back within six months or a few years, depending on what the loan is for.
Both types of loans are similar in many respects. For example, they can come with high APRs, making them extremely expensive, but they often don’t come with credit checks. For most borrowers, these loans are attractive because they offer quick cash.
Let’s compare them to make your decision easier.
Installment loans vs. title loans: How much can you borrow?
| Installment loan | Title loan |
|---|---|
| Typically under $1,000, though it can be more depending on the lender | Typically $100 to $10,000, depending on the lender, what your car is worth and the state you live in |
Installment loans are typically given for small dollar amounts, usually under $1,000. However, depending on the lender they can be as large as thousands of dollars or even over $10,000.
On average, title loans are for $100 to $5,500. But they can be for $10,000 or more from some lenders. However, the exact amount you’ll receive depends on the value of your car. Lenders will typically give you 25% to 50% of your car’s value.
Bottom line
Title loans can lead to bigger loan amounts, but with the risk of losing your car if you default.
What does it mean to “default” on a loan?
When a loan is at risk of default, it means that there’s a possibility the borrower will not be able to fulfill their obligation specified in the loan contract. For secured loans, like title loans, this means your car can be repossessed. For unsecured loans, like installment loans, your lender will likely sell your account to a collection agency or hire a debt collector to try to get the money you owe them.
Here’s a selection of installment loans you can apply for
Check to see if any of these lenders provide loans in your state.
Installment loans vs. title loans: What are the repayment terms?
| Installment loan | Title loan |
|---|---|
| Typically paid back in six months to a few years | Typically due in 30 days |
With installment loans, you pay a set amount monthly until you fully repay your loan. If you take out a title loan, it’s typically due in 30 days, although depending on the lender, you may be able to pay it back over a few months.
Bottom line
Title loans are typically extended for a very short amount of time. You’ll typically have more time to repay an installment loan.
Installment loans vs. title loans: What are the interest rates?
| Installment loan | Title loan |
|---|---|
| Typical APRs range from 25% to 100% | 300% APR and up |
Both installment and title loans can be very expensive — a three-digit APR isn’t unheard of. Be wary when applying for either, and make sure you can repay your loan on time. Many borrowers find themselves trapped in debt because they have to keep taking out new loans just to pay off old ones.
Bottom line
Both installment and title loans come with high interest rates.
Trapped in a debt cycle? Here are ways to dig yourself out
Installment loans vs. title loans: How much are the fees?
| Installment loan | Title loan |
|---|---|
| Varies based on lender | Varies based on lender |
You’ll probably pay a fee as soon as you take out an installment or title loan. These may include origination, processing and insurance fees.
What is an origination fee?
An origination fee is a fee charged by a lender for taking out a loan.
Whichever loan you pick, fees can add up to a substantial percentage of the loan. For example, if you take out a $500 title loan, you could pay $125 in fees alone.
Bottom line
Understand how much you’ll pay in fees — not just in interest — before taking out either type of loan. You may be surprised at how much they add up.
Beware of predatory lenders
Both title loans and installment loans are known to be readily available to customers with bad credit. You need to be wary of this, because these loans tend to come with extremely high interest rates and have fees that can land you into a debt trap. Here are some things to look out for:- Guaranteed approval. While you might think this is a great perk, it’s not. Lenders that offer guaranteed approval aren’t looking out for your best interests and don’t care whether you’ll be able to repay the loan or not.
- Pressure to borrow more than you need. You should only take out a loan for the amount you need to get through whatever financial hardship you’re having. Lenders who push you to take out more money aren’t looking out for your interests.
- Loan renewal options. You may think that being able to “rollover” your loan if you can’t pay it back is a good thing, but this is an easy way for you to land in a debt cycle, where you’re constantly renewing your loan or taking out more loans to pay for the first one.
- Upfront fees or payments. Be cautious of any lenders asking you to pay application or origination fees before your loan is disbursed. This could be a scam.
- The lender approached you. If you’re getting flooded with texts and robo-calls asking you if you want to take out a loan — run. These could be a scam. Legitimate lenders will at most send you a letter or two in the mail. Anything more persistent should raise a red flag.
Installment loans vs. title loans: What are the requirements?
| Installment loan | Title loan |
|---|---|
| Government-issued ID, source of income | Government-issued ID, title for car and proof of insurance |
When you take out an installment loan, you’ll need to present valid ID and a source of income. Most reputable lenders will check your credit. If your lender offers no-credit-check installment loans, be cautious: They tend to come with higher interest and fees that could land you in a debt cycle. Instead, you may want to consider another type of loan.
Find out the drawbacks of no-credit-check installment loans
With a title loan, a lender will rarely check your credit. Further, you usually don’t have to provide much proof that you can repay the loan. The most important requirements are the title for your car, valid ID and proof of insurance. Before handing over your title, remember that you could lose your car if you’re unable to repay your loan.
Bottom line
A lender will typically check your credit before extending an installment loan. It’s easier to get a title loan, because there’s no credit check.
Bottom line: Which option should you pick?
Both installment and title loans can get you cash in a pinch, but they can be filled with financial risk.
The title loan industry has a particularly poor reputation, because it often targets individuals who don’t have the ability to repay. Furthermore, a title loan requires that you put up your car as collateral — and you’ll lose it if you don’t repay the loan. This may put pressure on you that you might not have with a personal loan, for example.
Installment loans can be a mixed bag. Reputable lenders are out there, but in recent years installment loans have been widely extended without credit checks. As a result, they’ve trapped many borrowers in long-term debt — and that’s why they’re often associated with payday and title loans.
One of the biggest problems with title and installment loans is they can be extremely expensive. That often leads to miscalculating your ability to repay and potentially getting into deeper financial trouble. If you’re in a cash emergency, one idea is to consider alternatives before settling on a title or installment loan.
Frequently asked questions
Are payday loans available in my state?
Compare payday loans in your state
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Short-term loans can be good in an emergency, but they may not fit your needs.
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