If you need to decide between an auto title loan and a payday loan, which one would you opt for? At a glance both seem alike - they charge high interest rates, they are both short-term loans, provide immediate cash for those who cannot afford the luxury of a conventional loan, and are available quickly. These loans work fine if you are able to pay them back within the stipulated time, and in both cases you need to be careful not to default on payments. You also have the advantage of paying them off early without any penalty.
There is of course a fine difference between the two and you need to understand it, so as to be able to take the right decision. Auto title loans keep the title-papers of your vehicle as a guarantee, while payday loans use post-dated checks or electronic funds transfer as collateral.
For auto title loans you make the first payment after 15 days and thereafter, it is a 30-day billing cycle. You have to pay a minimum of ten percent of the principle amount each month and one percent interest per day on the balance amount. If for some reason you opt to extend your loan or roll it over, the terms and conditions may change.
In payday loans you pay a certain dollar amount for every $100 amount borrowed, it is, however, easier to pay a flat-rate for every $100 borrowed.
The disadvantage with auto title loans is that you could lose your car even if you default on a single payment, but on the other hand you would go out of you way to make sure you don't miss on a payment as you have something tangible, i.e., your car to lose and you would not want to risk it.
If you default on payday loans the loan amount becomes larger and the fees are increased. You tend to become a little careless with payments as you have nothing tangible to lose and you are ultimately hit with collective and legal action.
Both loans, though they seem alike on the surface, are quite different when you go beyond. The risks they offer are different and borrowers need to carefully weigh the pros and cons before going in for either.