Politics and Business

Title Loans Vs Payday Loans: How To Understand The Difference Between Both

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Anyone looking for a financial loan will have come across the words “title loans” or “payday loans” and although the two types of loans might sound similar, they are very different and knowing their differences can make a considerable difference to your life. Understanding what each one entails will help you make up your mind about which type of loan is best for you. Here are the differences. 


The purpose of a Title Loan is to help you meet an urgent and unexpected financial need. As title loan guides at FDR or other reputable guides will tell you, these are typically used for paying urgent medical bills, making last-minute home repairs or getting rid of heavy debt.

A Payday Loan on the other hand is designed to help people with low income or those who might need an extra few hundred pounds to cover them until payday arrives. Generally, this is used for paying rent, paying for a holiday or even a wedding.

Loan Amount

For Title Loans the loan amount is usually up to 75% of the value of your car. In most cases, you can get up to $35000 but it varies from state to state. Payday loans have a much smaller maximum limit of just $1000 to $1500.

Repayment Terms

A Title Loan does not have fixed fees or monthly payments. It is not linked to your salary so you are required to repay the loan in full on an agreed date, usually one month later.

Payday Loans are paid back by direct debit on the same day every month. To ensure that the borrower never misses a repayment, there are stringent rules which must be followed when it comes to collecting money from your account and budgeting for other bills at the same time. Because of this, there are often extra charges involved if payday falls on a weekend or holiday.

To illustrate, a Title Loan that is repaid within one month will have an interest rate of about 22.9% and if the term extends to two months, you can expect to pay 27.9%.

For Payday Loans, there are usually fees involved before you sign the agreement so it is important for borrowers to read through any documentation thoroughly. For example, Extra charges for NSF (not sufficient funds) payments or repayment days falling on weekends or public holidays might be charged as well as a fee for each day after the due date that the loan goes unpaid. On average this will equate to £15 per £100 borrowed and if not paid by direct debit, monthly charges will apply instead which typically amount to £12 per £100 borrowed until cleared in full.


Title Loans require your car to be the security against the loan as mentioned. Usually, only cars will qualify as collateral for a Title Loan but some lenders might take other types of vehicles such as motorbikes, scooters or even ATVs too. If your car doesn’t meet the lending criteria, you can try making a deposit by paying an upfront fee which can stand as collateral instead. Payday Loans do not need any collateral because borrowers must be employed and their salary should be sufficient enough to cover all expenses until payday arrives (or longer). They are also subject to an affordability assessment and must be able to prove that they have a history of employment and earning over a specified amount.

The Paperwork

Although both loans require the same documents, the lender might still refuse your application even if you meet all their criteria if you cannot provide proof of income for example. This means it will take more effort on your part when applying for a payday loan than it would with a Title Loan. You also need to consider how long it might take to complete the documentation process which varies from one lender to another so make sure you factor in enough time before leaving yourself short.

Title Loans are designed to help you get the money you need quickly, conveniently and easily. They do not carry credit checks so anyone can apply for one no matter how bad your credit score is. Of course, this means that there will be additional fees involved which will vary depending on state or lender but affordability assessments can prevent customers from over stretching themselves. Payday loans are meant to tide you over until your next payday. They generally have a shorter repayment term and this means the borrower has a very short period of time in which to repay the loan. This can be a serious disadvantage because borrowers must bear in mind that they will be charged additional fees for late-payments if they miss the deadline.


About Michelle Joe: Michelle Joe is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences, and express herself through her blogs. You can find her on twitter: @michellejoe524

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