The Quick-Cash Loan Guide: What You Need to Know Before You Borrow
Quick-cash loans such as those offered by payday and auto title lenders can help you out of a tight bind by getting you cash in 24 hours or less. In return, you pay interest on the amount you borrow and promise to repay the loan within 30 days. Although quick loans can solve immediate, short-term money problems, they can also land you deeply in debt if you don’t borrow responsibly. Use this guide to determine whether a quick-cash loan is the best choice for you.
1. Loan Basics
Payday and auto title loans require an application that asks for your Social Security number, income, bank account number and contact information. There’s typically no credit check.
Auto title lenders also collect information about your car, because you’ll use it as collateral for the loan. This means the lender can take your car if you don’t repay the loan. You must have a clear title with no liens to qualify, and the car must meet the lender’s minimum value standards. The lender may or may not hold the title until the loan is repaid, but either way, the loan constitutes a lien on your title. This means the lender has ownership interest in your car, so you can’t sell or give your car away until your loan is repaid.
Quick loans are usually repaid by a pre-arranged direct debit from your checking account 30 days after you borrow the money.
Payday and auto title lenders usually allow you to roll over your loan if you’re unable to repay it on the due date. Payday loans often roll over automatically when the borrower misses the due date. However, you may need to contact your auto loan lender to arrange a rollover; otherwise, the lender can repossess your car.
3. The Cost of Borrowing
Payday and auto title loans usually cost about 25 percent of the amount you borrow, according to Bankrate.com. That’s assuming you pay on time.
The annual percentage rate is higher. The APR is the total amount you’d pay if you were to keep the loan for a year or longer, as would be the case if you rolled it over. APRs of as much as 300 percent are common, Bankrate notes. However, as long as you repay the loan on time, your actual percentage rate is likely to be closer to 25 percent.
4. The Costs of Borrowing Vs. Not Borrowing
An interest rate of 25 percent is very high if you’re borrowing the money for a non-necessity. If you’re borrowing because you’re in a temporary crunch and are in danger of missing credit card payments, on the other hand, 25 percent might be a bargain compared to the fees the credit card companies charge for late payments.
The quick loan might also work in your favor if you need a car repair that, if not made, would result you having to take public transportation or rent a car, or you’re facing eviction and have no other way to raise rent money.
5. Shop Around
It pays to compare loan costs and terms before you commit to a particular lender. Although the APR is the best tool for comparison because accounts for all loan costs, it assumes you’ll miss the due date and pay the loan for at least a year. If you’re confident that you’ll be able to repay the loan on time, give equal weight to the lender’s standard costs, which include the interest rate plus any upfront fees.
If you’re taking an auto title loan, also consider whether you’re required to increase your insurance coverage or purchase add-ons such as a roadside service policy.
Payday and auto title loans can be good, short-term solutions to short-term money problems. Used responsibly, they can give you the breathing space you need to get your finances back on track.