What To Know About Payday and Car Title Loans

Payday loans are small short-term loans. They typically are for less than $500, and usually have to be repay within two to four weeks. Also known as payday loans they’re legally permitted in all states.

For payday loans, you provide the lender with an individual payment of the money you wish to borrow and the charges of the lender. Then, you give permission to the lender to debit your loan amount, plus fees in your account electronically. If you don’t pay back the loan in time the lender may cash the check, or electronically debit your account.

Payday loans are costly. Lenders usually charge between $10 and $30 for each $100 loaned. In a typical two-week payday loan, a cost of $15 for $100 is equivalent in an annual percent of (APR) which is of 391 percent. The APR will tell you the amount it will cost you in order to borrow money for one year. The average APR for credit cards is 15%..

Here’s how a typical payday advance is made:

  • You’d like to take out a loan of $500. The lender gives you a loan of two weeks. The charge is $15 per each $100 you take out. Thus, your cost will be $75.
  • You present the lender with an amount of $575 in cash or you give the lender to take money from your account. The lender pays you cash in the amount of $500.
  • After two weeks two weeks later, you make the lender pay $575. The lender can either charge your checking account or cash the check or request cash or any other cash from your account, based on the method you chose to pay the loan back.
  • The bottom line is that you have paid $75 to get 500 for two weeks.

Costs rise when you roll over. If you can’t pay the loan back when it’s due date, many lenders will allow you to delay the date of due by an additional two or four weeks but you’ll have to pay an additional fee. This is called a “rollover.” Each time you extend the loan your lender is going to charge an additional fee, but you’ll still be liable for the original amount. The amount of the loan increases quite quickly.

This is how a common rollover operates:

  • In the above example in the example above, on the due date, you don’t pay, instead you take out a rollover of the two-week $500 loan. The rollover is an additional $75.
  • This $75 is added on to the $575 that you already have to pay, meaning you now have to pay $650.
  • The rollover increases your borrowing cost from 500 for four months up to $150.

If you carry over the loan multiple times, you could end up paying several hundred dollars of fees, and still owe the initial amount you took out.

What To Know About Car Title Loans

Title loans for cars, usually simply referred to as title loans, are also short-term loans. They usually last 15 or 30 days. The loans use your vehicle motorcycle, truck, or another vehicles as collateral. They typically cover amounts that range between 25 and 50 percent of the value of the vehicle.

To qualify for a title car loan, you need to provide your lender the title of your car. Typically, you have to be the owner of the vehicle in full and unmarked, but certain lenders will accept your title even if you’ve paid off the bulk of your loan. The lender may want to have a look at the vehicle, an identification photo and evidence of insurance. Some lenders will also need an additional set of keys to the vehicle.

If you take out a credit for a title, then you will not receive your car title until you pay back the amount you borrowed plus the lender’s finance fee as well as any other fees.

Title loans for cars are costly. Title loans generally come with a monthly average charge of 25% which is equivalent to an APR of around 300%. Title lenders typically add additional fees on top of the loan amount, like processing documents, processing, and fee for loan origination. There is also the possibility of having to purchase additional items, such as an insurance plan for roadside services. If you are required to pay extra fees and purchase add-ons, the price of your loan could be more expensive.

Here’s how a typical title car loan operates:

  • You’d like to borrow $1000 for 30 consecutive days.
  • The financing fee is 25 percent. So, you’ll have to pay $250 in order to get $1,000.
  • You provide the lender with the title of your car and they pay you $1,000 cash.
  • If you are due to pay the lender in the next 30 days, you’ll need to pay $1,250 in addition to any additional fees that the lender may charge.

Costs can rise when you roll over. As with payday loans, if you cannot pay back the title loan by the time you are required to, your lender might allow you to roll it over into another loan. However, rolling it over can add additional fees and interest to the debt you have to pay.

Here’s the typical way a title loan rollover functions:

  • In the above example in the example above, on the due date, you don’t pay, instead you simply transfer the 30 day, $1000 loan to another thirty days. The rollover is expected to add $250 in finance fees and any other charges in addition to the amount that you are obligated to.
  • This $250 is added on to the $1250 you already owe. So you now owe $1,500 and any other fees the lender might be able to charge in connection with the rollover.
  • The rollover increases the expense of borrowing $1,000 over 60 days up to $500.

You can lose your vehicle. If you’re unable to repay the amount you owe the lender, they may take possession of your car even if you’ve only made only partial payments. If you are approved for a loan the lender may will insist that you install Global Positioning System (GPS) and starter interrupters so that they can track the vehicle and turn off the ignition system remotely, making repossession much easier.

When the lender seizes the vehicle, they are able to sell the vehicle, leaving you with no transportation. In certain states, lenders may keep the entire amount they earn from the sale of the vehicle even if they earn more than what you have to pay.

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