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Payday Loans vs. Title Loans: What’s the Difference?

Today a number of different types of loan options are available to individuals. While this has helped a greater number of individuals to obtain a loan to meet important expenses, it has also created confusion when it comes to selecting a loan that’s best for them.

Two types of loans that are growing in popularity particularly among individuals with bad credit score include payday loans and title loans. A report by Pew Charitable Trusts in 2015 had found that about 5% of Americans use payday loans, while just 1% applies for title loans.

A lot of people get confused when they come across these two types of loans during their search for a loan. Here we will take a look at the two types of loans in a bit detail so that you can make an important decision as to which of the two types of loans is better for you.

Payday Loan and Title Loan: The Similarities and the Differences

Payday loan and title loans are similar in that they are short term loans. Moreover, they both are targeted to users with a bad credit history. Individuals that are not able to obtain the personal loans look at these alternative loans to meet the cash short fall. There is no credit check to obtain both types of loans.

Another way payday loans and title loans are similar is that both of them have a high rate of interest. The lenders charge a high rate to compensate for the risk for issuing loans to people with bad credit history.

But this is where the similarities between the two types of loan end.

While payday loans are unsecured loans in that they are not secured against any collateral, the title loans are secured loans. The title loan, as the name suggests, is secured against the title of a car. The risk with this type of loan is that the individual could lose a $4,000 car for not making payment of a $400 loan.

Due to being a secured loan, title loans generally entail lower finance charges. This is another difference between the two loan types. The average APR on title loan is about 300% while that on the payday loan is 400%. The interest rate will accrue on the loan, if you miss a loan payment.

Lastly, title loans are generally for a larger sum as compared to payday loans. People generally take out the $1,000 title loan as compared to an average of $375 for payday loans. In addition, the fees paid on an average title loan are also greater since they are of a greater amount. Generally, people pay around $1,200 fees annually on title loans, while they spend just $520 on payday loan fees.


Payday loans and titles loans are both short term loans but with different characteristics. It is important that you fully understand the two types of loans before applying for one to cover important expenses. The more you research on the topic, the greater will be the choice that you don’t make a mistake when making a decision.