What you need to know about payday loans and car title loans
If the coronavirus pandemic is causing you financial stress, you are not alone. Millions of Americans have lost all or part of their income because they cannot work. Economic impact payments from the government can help, but some people may look for other ways to borrow money for a short time. They may consider options like a payday loan or a car title loan, which can be very expensive. Here’s what you need to know.
A personal loan is a loan granted for a short period. Sometimes only two weeks. To get a payday loan, you give the lender a personal check for the amount you want to borrow, plus any fees the lender charges you. The lender gives you the money minus the fees. On your next payday, you’ll have to pay the lender the amount you borrowed plus fees, in cash.
Payday loans can be very expensive. Here is an example :
- You want to borrow $500. The fee is $75. You give the lender a check for $575.
- The lender gives you $500 in cash. He keeps your check.
- When it’s time to repay the lender, often in two weeks, you pay them $575. The lender returns your check to you.
- In summary: you paid $75 to borrow $500 for two weeks.
Car title loans
A car title loan is also a loan made for a short period of time. They often only last 30 days. To get a car title loan, you give the lender the title to your vehicle. The lender gives you money and retains title to your vehicle. When it’s time to repay the loan, you must pay the lender the amount you borrowed plus a fee. Car title loans can be very expensive. Here is an example :
- You want to borrow $1,000 for 30 days.
- The fee is 25%. Borrowing $1,000 is $250.
- When it’s time to repay the lender in 30 days, you pay them $1,250.
Car title loans are also risky. If you can’t repay the money you owe, the lender could take your vehicle away from you. He might sell it and keep the money, leaving you with no transportation. This video shows what can happen.
Other ways to borrow money
Payday loans and car title loans can be very expensive. Consider other ways to borrow money, such as get a loan from a bank or credit union.
Most loans have an annual percentage rate, or APR. The APR is how much it costs you to borrow money for a year. When you get a payday loan or a cash advance loan, the lender must tell you the APR and the dollar cost of the loan.
Here is a comparison of cost of borrowing $500 for one year.
What if I’m in the military?
If you’re in the military, the law protects you and your dependents. The law limits the APR on many types of credit, including payday loans, car title loans, personal loans and credit cards, to 36%. The law also requires lenders to give you information about your rights and the cost of the loan. the the army also offers financial assistance and helps you manage your money.
Other options if you can’t pay your bills
- Ask for time. Ask the companies you owe money to if you can have more time to repay the money.
- Acquire help. A credit counselor may be able to help you manage your debt.
- Apply for unemployment. Consider applying for unemployment insurance benefits from your state. Learn more and find out if you qualify for the Department of Labor website.
Get more tips on managing the financial impact of coronavirus, including what you can do if you: