Payday Loans vs Installment Loans vs Title Loans

(Sponsored) Both payday loans and cash advance installment loans assist borrowers with small dollar loans for emergencies and other cash gaps. The difference between the two lending vehicles lies in the repayment terms. Payday loans are probably the most short term loan vehicle on the market because they are designed to be paid back in full on the borrowers next payday. However, many borrowers realistically need more time to pay back. Because of this reality, many borrowers prefer the structure of a cash advance installment loan instead of a payday loan.

Both payday loans and cash advance installment loans carry high interest rates as they are used by high risk borrowers, but cash advance installment loans are designed with a multi-payment schedule. This schedule provides a forced principle pay-down over time, usually somewhere between six and twelve payments depending on the amount borrowed. This helps borrowers manage their loan better than if they were to continually extend a payday loan with little or no principle being paid on the earlier payments.

Also, installment loans often offer more money lent to the borrower than payday loans because of the clear expectation that the loan will be paid back over a longer period of time. If you are a consumer in need of small dollar emergency fast cash, the choice between a payday loan and a cash advance installment loan lies in the time you realistically need to pay back the loan, as well as how much quick cash you need.
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Many lenders, both brick and mortar and online, offer both payday and title loans. There are many differences between the two. Payday loans do not have physical collateral.  With a payday loan, the collateral is centered in the lender’s access to the customer’s bank account through ACH authorization. There is no other collateral on a payday loan. However, there are consequences for default, such as a negative mark on a consumer’s credit with the data providers that service the payday industry. This often results in a consumer being denied future payday credit by other lenders. Due to the lack of strong, physical collateral, payday loans carry a higher interest rate than title loans to cover the increased risk of default.

A title loan, by comparison, pledges the title of a consumer’s automobile as recoverable collateral for the loan. This is a strong, physical asset the lender can pursue for repossession and re-sale in the event of a charge off of the loan. Because of this, the lender is able to risk lending more money on a title loan than on a payday loan. Typically, title loan interest rates are comparatively lower than that of a payday loan because there is less risk with the strong collateral. Title loans are typically for higher dollar amounts than payday loans and are evaluated based on a percentage of equity and / or value of the vehicle being pledged for collateral on the loan.

If you are a consumer in need of fast cash that is in the thousands as opposed to the hundreds of dollars, and you have a vehicle that has a free and clear title and some relative value to it, a title loan is a good way to borrow. However, make sure you understand that the consequences of default could result in the repossession of your vehicle.

If you are a consumer in need of only hundreds of dollars to cover a short term emergency then a payday loan, or even an insecure cash advance installment loan, would be a better option.

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