The Risks and Advantages of Pay day and Title Loans

Despite all our best efforts, debt will be an inescapable part of our lives, and we may, at one time or another, be without ready cash to pay for emergency purchases we need to make, or fees that we need to settle. There are many ways by which you can pay off debts, but if you need money on hand, then you will need to take out a loan. For instance, you can take out a pay day loan to obtain some money, with the promise that you can pay it on your next pay day. You can also take out a title loan by offering your car as the collateral for your loan. Before you do any of these, however, you need to understand both pay day and title loans, and the risks and advantages associated with them.

How does a pay day loan work? If you are in need of money, and you have enough confidence in your financial situation that you are sure you can pay the loan off by your next pay day, then you can approach your company or a professional, licensed lender to take out a pay day loan or cash advance. You then give the company a written authorization to withdraw the amount you are asking for from your bank account on your pay day, or to take out the amount you are asking for from your next paycheck; or you then give the licensed lender a post-dated check with the amount you are asking for.

How does a title loan work? Instead of giving a post-dated check or written authorization, you hand over your automobile and use it as collateral, or assurance of payment, for the loan that you are taking out. You can then leave your automobile with the lender, whether it is a professional, licensed lending institution, or your own company; you will receive your loaned money in return.

Both pay day and title loans are high interest loans, with interest rates much higher than a hundred percent. Automobile title loans, in particular, often require that you repay loans within a month of your first obtainment. Sometimes, the loan you take out will be much less than your automobile's true value, so that many credit and loan experts recommend that you sell your car and use the money to pay off your fees and purchases. Selling your car can be more useful than taking out a loan, as it can keep you out of a vicious cycle of debt, where you can find yourself sinking deeper and deeper into debt simply because of high interest rates that you need to settle long after you have paid the initial debt.

Both pay day and title loans can be given to people who have no previous credit history, or who have a bad credit history and thus cannot use credit cards or other loan alternatives besides pay day and title loans to pay off their debts or purchases. Some lending institutions, however, will be stricter when giving pay day loans: they will require that a person has a stable job and a regular salary, as this will ensure loan repayment.

What happens if you cannot pay your pay day or title loans? In the case of pay day loans, if your post-dated check bounces, or if you do not have enough money on hand or in your account for loan repayment, you can be slapped with more fees to pay. These can include bank fees, lender's fees for bounced checks, and even more interest rates. In the case of title loans, your car may be repossessed. In both cases, a lender can take legal action against you if you refuse to pay your loan, or if you cannot pay it at all.

Instead of securing pay day or title loans in the future, learn to prevent any financial debacles by being aware of your spending habits. Live within your means, and always set aside a part of your salary to cover emergencies. If you have debts, negotiate with your creditors on payment options instead of plunging into loans.

If you are interested in procuring pay day or title loans, then do as much research as you can on the advantages and disadvantages of taking out such loans. Look at what other alternatives you can pursue in the event of money shortage. Pay day and title loans, despite their apparent attractiveness as a financial escape, should be your last resort if you need to pay off your purchases and debts.

Source by Nathalie Fiset

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