An Analysis of Car Title Loans vs Payday Loans

Which Type of Loan is the Best Option For You?

When your bank account gets low and you have a financial emergency you may need access to cash within 24 to 48 hours from a good lender. Because there is such a need for immediate funds, short term loans are many times the only realistic options–especially if you have less than ideal credit.  Traditional banks and credit unions often won’t loan you the money, and the underwriting process can be very slow.  This is the time when many people will either apply for an auto title loan or a payday loan.

Before you borrow any money, however, it is important to understand the difference between how they work – the pro’s and con’s of each and how to make an informed decision on which is best for you.

An Analysis Car Title Loans vs Payday Loans

Before we get into the exact details on payday loans vs car title loans it’s important that we state up front that yes, they are very different from one another.  The only real similarity between these two types of loan is that they can be used to get cash immediately.

First, let’s begin with how a payday loan traditionally works.  A payday loan is secured by your paycheck.  Generally, you will write the lender a post-dated check or set up an automatic funds transfer for the amount of your paycheck and give that to the lender.  The funding is immediate (except there generally are processing fees) and once you get your check the lender takes the money immediately as repayment for the loan.

Generally, payday loans are for short periods of time–like 2 weeks, and the amount you can get is normally fairly low–like $100 to $1,000).  The true cost of a payday loan is generally a “flat fee” based on the total amount borrowed, and of course the lenders want to make sure you have a job with steady income in the first place.

A huge difference between auto title loans and payday loans is that car title loans are not secured by a paycheck, but the lender’s loan you the money by using your car or truck as collateral.  You also must have equity in your vehicle before you can get a car title loan.  Think of it like a home equity line of credit, except it is for use on your car.

In the state of California there are laws that regulate the industry and the lowest amount you can borrow is around $2,500. (Some lenders make it $2,500 and some make it $2,550.  It depends on the law and most current regulations).

Another big difference between payday loans and vehicle title loans is the term of repayment.  Most title loan lenders will let you pay the loan back over a period of several years…24 to 36 months–thereby keeping your payment low.

If you are looking at the pure math, most of the time a car title loan is actually cheaper than a payday loan, however, one has to realize that neither payday loans or title loans are a good opportunity to borrow cash for a long period of time and they should only be used for short periods of time.

Things to Consider When Choosing a Title Loan or Payday Loan

When you are low on money, short term loans like title loans and payday loans can help you get through difficult times.  It is important, however, to look at the fine print and each and every detail.  Do not be afraid to ask the loan officer’s questions such as what the yearly interest rate is, what your monthly payment is, if you have a grace period, and other questions.

Vehicle Title Loans for California Residents

Big Car Title Loans Los Angeles provides elite title loan services to California residents who need immediate cash. Our loans can help you get more money than a payday loan.  Click here to go to our main page and fill out a form, or call one of our friendly staff members today at Call 818-217-8960