Title loans vs. payday loans: What’s the difference? | finder.com

Title loans vs. payday loans: What’s the difference?

If you’re short on cash and need to borrow money, a title loan or payday loan may help.

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    Title loans vs. payday loans: How do they differ?

    • When you take out a title loan, you borrow money by designating the title to your car as collateral. This type of loan is usually due within 30 days or a few months.
    • A payday loan is a short-term loan you get by writing a postdated personal check in-store or applying online. You typically repay it when you get your next paycheck, usually within two weeks.

    Both loans are fairly easy to get — they typically don’t require stringent credit checks. However, they can cost you a lot in fees and interest.

    Let’s compare them to make your decision easier.

    Title loans vs. payday loans: How much can you borrow?

    Title loanPayday loan
    Anywhere from $100 to $10,000, depending on the lender, the state you live in and what your car is worthTypically $100 to $1,000

    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. Most lenders will give you 25% to 50% of the car’s value.

    With a payday loan, you can usually borrow between $100 and $1,000. Many state governments have enacted borrowing limits that protect consumers, so check your state’s laws on payday loans.

    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 won’t be able to fulfill their obligation specified in the loan contract. For secured loans, this means the lender can potentially take the property you had on collateral and sell it. For unsecured loans, your credit will suffer and lenders will usually try to take legal actions to collect.

    Here’s a selection of online short-term loans you can apply for

    Check to see if any of these lenders provide loans in your state.

    Rates last updated February 26th, 2018
    Unfortunately, none of the short term loan providers currently offer loans in your state. Learn more about short term loans in your state to find an alternative.
    Name Product Product Description Maximum Loan Amount Term of Loan Turnaround Time Requirements
    LendUp Payday Loans
    LendUp offers $250 loans for first-time borrowers. Good credit is not required. Visit the site to see if available in your state.
    $250
    7–30 days
    generally receive the money the next business day
    Be 18+ years of age and have a checking account that can accept electronic transfers.
    CashNetUSA Loan
    Apply for a short-term loan with an easy online application and dedicated customer service.
    Varies by state
    Varies by state
    1 business day
    You must be a US citizen or permanent resident, be at least 18 years old and have regular income and a bank account.
    Check into Cash Payday Loan
    With 1,000 branches in 30 states, get $50 to $1,000 in days from this direct lender.
    $1,000
    Varies by state
    1–2 business days
    You must be at least 21 and an American citizen and have a bank account, email address and phone number.
    ACE Cash Express Payday Loans
    Quick payday, installment and title loans with no prepayment penalty and a 72-hour satisfaction guarantee. Funds can be loaded on an ACE Elite™ Visa® Prepaid Debit Card.
    Varies by state
    Varies by state
    Generally receive the money the next business day
    Must be 18+ years old, have a steady source of income and a checking or savings account. Must not be a debtor in bankruptcy.

    Compare up to 4 providers

    Title loans vs. payday loans: What are the repayment terms?

    Title loanPayday loan
    Typically due in 30 daysTypically due by the borrower’s next payday, usually within two weeks

    Both title and payday loans need to be repaid within a short period of time. For a title loan, 30 days is typical. For a payday loan, you’ll typically need to repay it when you receive your next paycheck, usually within two weeks.

    Bottom line

    Since you’ll need to repay these loans quickly, it’s best to use them only if you’re sure you’ll have enough money to repay them by the due date.

    Title loans vs. payday loans: What are the interest rates?

    Title loanPayday loan
    Typically 300% APR and upTypically 400% APR and up (calculated from finance fees)

    There’s no escaping the fact that both title and payday loans are expensive. A title loan will likely cost you at least 25% a month in interest — that translates to an average APR of 300%.

    With a payday loan, you’ll usually be charged $15 to $30 for every $100 you borrow. This finance charge serves as the interest you’ll pay on your loan. Since the window of a payday loan is around two weeks, the APR works out to about 400% and up. For example, if you take out a payday loan for $500, you might pay $150 in interest — or nearly a third of your loan.

    Bottom line

    Both title and payday loans come with high interest rates.
    What’s the difference between installment loans and title loans?

    Title loans vs. payday loans: How much are the fees?

    Title loanPayday loan
    Varies based on lenderFinance charge of $15 to $30 per $100 borrowed

    Fees for title loans will vary based on the lender. These may include origination, processing and insurance fees. Before agreeing to anything, be sure that you understand the loan terms and any fees you’ll need to pay.

    Title loan fees can add up to a substantial percentage of the loan. For example, if you take out a $500 loan, you could pay $150 in fees.

    For a payday loan, you’ll usually pay $15 to $30 for every $100 you borrow. If you can’t pay off your loan when it’s due, you may need to roll the amount you borrowed into a new loan. At that point, you’ll likely pay additional fees.

    Bottom line

    Fees for both loans can be high, although title loans tend to come with more aggressive fees.

    Title loans vs. payday loans: What are the application requirements?

    Title loanPayday loan
    Government-issued ID, title for car and proof of insuranceGovernment-issued ID, bank account details and proof of income

    Title and payday loans are relatively easy to get, because lenders rarely run credit checks. For a title loan, you’ll need a government-issued ID, the title for your car and proof of car insurance. For a payday loan, you’ll need an ID, a bank account and proof of income.

    Bottom line

    Title and payday loans typically don’t require the credit and background checks that are required for other loans, which makes them easy to get. Still, carefully consider your ability to repay them.

    Do payday loans and title loans affect my credit?

    Many lenders don’t report payday loans and title loans to the credit bureaus, which isn’t always a good thing. After all, if you’re making your payments on-time, it would be nice to have that reported. But often times, if you’re struggling to make your payday or title loan payments, other parts of your finances are in distress too, which could cause you to miss payments on other expenses. So while payday and title loans may not directly affect your credit, they could still wreak havoc on your overall credit health.

    Bottom line: Which option should you pick?

    Title and payday loans can help you score cash quickly. But they can be expensive, especially when lenders sneak in hidden fees and terms. Be sure to compare your short term loan options to find the best rates for you.

    If you can’t repay your loan, you could find yourself in a debt cycle by continually taking out new loans just to pay off what you owe. With a title loan, you could lose your car if you default.

    Stuck in a payday loan cycle? Here’s how to dig yourself out

    For ideas on how to avoid title and payday loans, check out our list of eight alternatives to these types of loans.

    Frequently asked questions

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    LendUp Payday Loans

    LendUp offers $250 loans for first-time borrowers. Good credit is not required. Visit the site to see if available in your state.

    Check into Cash Payday Loan

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