A payday loan or car title loan may be a good option if you have an urgent need for cash to pay bills, rent, or cover your expenses. These loans can be costly and trap you in debt. Learn more about how these loans work and other ways you can quickly get credit or money.
Here’s what you need to know about payday loans
Payday loans are short-term, small loans. Payday loans are usually $500 or less and must be repaid in two to four weeks. They are also known as cash advance loans and are legal in most states.
You must give the lender a personal cheque for the amount that you wish to borrow and the lender’s fees. You can also authorize the lender to electronically take the amount of the loan, along with any fees, from your bank account. The lender may cash the check or debit your account electronically if you fail to repay the loan in due time.
Payday loans can be very expensive. They charge between $10 and $30 per $100. A typical payday loan costs $15 per $100. This is a annual percentage rates of 391%. An APR is the annual cost of borrowing money for one year. The average APR on credit cards is 15%.
This is how a typical payday loan operates:
- You need to borrow $500. You are offered a two-week loan by the lender. For every $100 borrowed, the fee is $15. Your fee will then be $75.
- The lender will send you a $575 check or authorize the lender to debit your bank account electronically. You receive $500 cash from the lender.
- You pay the lender $575 two weeks later. Depending on the terms of your agreement to repay the loan, the lender can debit your bank account or cash your check.
- Bottom line: For $500, you paid $75.
Rollovers can increase costs. Many lenders will allow you to extend the due date by two to four weeks, but you will have to pay another fee. This is called a “rollover”. Each time the loan is extended, the lender will charge a fee and you will still owe your original balance. The cost of the loan can quickly rise with rollovers.
This is how a typical rollover looks:
- As an example, you can pay the original due date but not the $500 loan. Instead, you can roll over the loan for two weeks. You will need to pay $75 more for the rollover.
- You now owe $650 after adding $75 to the $575 already owed.
- Rollovers reduce your borrowing cost by $500 for four weeks to 150
You could end up paying hundreds of dollars in fees if you continue to roll the loan over several times. However, you still owe the original amount.
How to Get Car Title Loans
Short-term loans can also be obtained by car title loans. These loans typically last between 15 and 30 days. Your vehicle is used as collateral for the loans. These loans are usually for 25% to 50% of the vehicle’s value.
You must provide the title of your vehicle to the lender in order to get a car-title loan. You must own your vehicle clear and free from any liens. However, some lenders will accept your title if you have paid off the majority of your vehicle loan. Lenders will need to see the vehicle and proof of insurance. A duplicate set of keys is also required by many lenders.
You won’t be able to get your vehicle back if you take out a title loan.
Car title loans can be very expensive. Title loans typically have a monthly finance fee of 25 percent, which is equivalent to an APR around 300%. Other charges, such as processing, document and origination fees, are often added by title lenders to the loan amount. Add-ons such as a roadside assistance plan may also be required. Your loan cost will increase if you have to pay additional fees or buy add-ons.
This is how a typical car title loans works:
- You would like to borrow $1,000 for thirty days.
- The finance fee is 25%. This means you will need to pay $250 to borrow $1,000
- The lender will give you the title of your car and $1,000 cash.
- You must repay the lender within 30 days. This will require you to pay $1,250 plus any additional fees.
Rollovers can increase costs. As with payday loans near me, if a title loan is not paid on time, the lender might allow you to roll it over to a new loan. However, rolling over the loan can result in higher interest and fees on the amount owed.
This is how a typical title loan rollover looks:
- As an example, you can pay the original due date but not pay it. Instead, you can roll over the $1,000, 30-day loan for another 30 day. Rollover fees will increase the amount you owe by $250.
- You now owe $1.500 plus the $1.250 you already owe.
- Rollovers reduce your borrowing cost by $1,000 for 60 days to minimum $500
You can lose your vehicle. The lender can take your vehicle away if you are unable to repay the loan amount. Some lenders require that you install a Global Positioning System and Starter Interrupt Devices when you apply for a loan. This will allow them to remotely locate and disable the ignition system and make repossession much easier.
After the lender takes possession of your vehicle, they are allowed to sell it. You will no longer have transportation. Lenders can keep all proceeds from the sale of your vehicle in some states, even if you owe more.
What information should I look for when applying for a title or payday loan?
Federal law treats title and payday loan near me as other types of credit. Before you sign the loan agreement, lenders must inform you in writing about the cost of the loan. The finance charge is a dollar amount and the APR is a percentage. The APR depends on how much you borrow, how much you pay in monthly finance charges, how long you borrow money, and what fees you have to pay. The APR allows you to compare the costs of borrowing money from different lenders. This is the best way to determine how costly a loan is.
To find out if there are additional fees or costs, make sure you carefully read the loan agreement. These fees can include late and returned check fees. You may also need to pay fees to rollover the loan.
You can also check with your state lawyer general and state regulator for information about the state’s payday lending laws. Many states offer protection against high-cost payday loans by imposing small loan rates caps and other measures. Lenders operating in the state are required to obtain licenses by many states.