Title Loans vs. Payday Loans: What's The Difference?

With the ongoing economic uncertainty, there may often come a time when it seems like your personal finances are struggling to stay afloat.

This gets worse when you’re looking at a shortage of savings to pay credit card bills and other pending payments. Not to forget an unforeseen event like a pet medical emergency cropping up unexpectedly that puts a strain on your finances.

Either of these situations can happen to the best of us and in such times, you need to seek instant financial support. While borrowing a sum from your friends or family may seem instinctive, when done repeatedly it can strain your personal relationships.

Fortunately, with a wide range of lending options available in the UK today, you are not restricted to only taking a loan from a bank. Multiple lenders offer various convenient loans to ease your financial woes. From an employee loan to a payday loan, you can choose from different types of loans as per your requirements.


But before you hop on the wagon and apply for a loan, it’s best to understand what each loan type offers. Research is absolutely necessary before making any financial decision, especially when it comes to taking a loan.

Out of the various types, payday loans and title loans are two of the most common types, but how do they differ from one another? Is a payday loan better than a title loan? or vice versa?

In this article, we are going to explore exactly that! So let’s get started

Understanding Title Loans

Title loans are short-term secured loans, which means they need collateral as security. More often than not, title loan lenders ask you to offer your vehicle or any other valuable asset for security.

Your asset is thoroughly evaluated to cover any financial risks the lender foresees like if you fail to pay the repayment amount. In case you fail to pay the title loan back, the lender can sell your asset and recover the loan amount.

The loan amount you qualify for directly depends on the value of your collateral. Say, if you are offering your car as security for the title loan, the disbursed loan amount will be 25% to 50% of your car’s value.

As this is a short-term loan, you need to pay off the borrowed amount within the repayment term mentioned in the agreement, which ranges from a few weeks to thirty days.

It’s good to note that there is no penalty on pre-payment in title loans, which means you can repay your loan when you have extra cash on hand. Also, you need not pay the entire borrowed balance instantly, giving you time on your hands to periodically pay back the loan amount.

Understanding Payday Loans

Payday loans are loans disbursed for a short term but are unsecured. As the name suggests, a payday loan is a funding opportunity to secure extra cash in between your monthly paychecks. If you are running short of a small amount of money, that’s probably the best time to consider a payday loan.

Most borrowers turn to this type of loan as it does not require an asset as security and is disbursed rather quickly. The process of applying for a payday loan is quite simple with limited paperwork, which is an added plus. Most lenders streamline their payday loan application online for the borrower’s convenience. As a result, payday loans are disbursed within 24 to 48 hours of approval.

The repayment process of a payday loan application is usually through automatic debits from your bank account.

Difference Between Payday Loans and Title Loans

So which loan option is better? Payday loan or title loan?

While both payday loans and title loans are short-term lending options, you’ll find a few differences between them. Let’s explore some of them:

Asset or Collateral

Payday loans do not require a valuable asset for collateral while having an asset like a car for security is a must for a title loan. This can be an obvious drawback if you don’t own a car or any similar valuable asset.

Disbursement Lead Times

Both these loan types offer immediate disbursement, but compared to the lead time for title loan disbursement, payday loan amounts are disbursed much more quickly. This is because the application process does not require much paperwork and there’s no need to verify any assets for loan security.

Balloon Payment

Some payday loan lenders may ask you to pay the entire borrowed loan amount in one lump sum payment, which is known as a balloon payment. Title loan lenders usually don’t ask you to pay a lump sum or the entire loan amount right away and can be done periodically.

Defaulting on Repayment

Defaulting on a payday loan can lead to your interest and penalty fees piling up with your pending loan amount. On the other hand, when you repeatedly default on a title loan, the lender may take possession of your car or any other asset used as collateral for the loan.

In Conclusion

Regardless of the type of loan you choose, it is always good to read the fine print when looking to secure a loan. Remember that both title loans and payday loan lenders apply extremely high interest rates on the borrowed amount given their shorter borrowing duration.

That’s why, it’s advisable that you conduct your research well in advance by calculating the loan amount you need, along with the late fees and charges. Take an all-round approach when selecting the best loan instrument for your needs.

Note:  Never borrow what you cannot repay.

*Collaborative post

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