So, is a Payday Loan Secured or Unsecured?
A payday loan is an unsecured loan. Therefore, you are not required to pledge an asset as collateral in order to obtain loan approval. This is what separates payday loans from other types of alternative loan options, such as pawn shop loans or title loans.
What is a Payday Loan?
As the name suggests, a payday loan is a type of loan that is meant to last someone in between pay periods. Inflation has hurt a lot of Americans, and if you are struggling to stay afloat financially, you are not alone.
However, it is important to stay financially literate. You should learn more about the pros and cons of certain types of loans. As a consumer, knowing the services that are available to us can make a difference between drowning and staying afloat. Payday loans can give us a financial boost when something occurs in our personal lives. But, they are not the only loan option out there that you can utilize if you need financial help. Max Cash® is here to talk about payday loans, personal loans, and more!
A payday loan is a financial product typically used to cover emergency expenses and is generally short-term in nature. Most applicants will apply for a payday loan after an unexpected expense has come up and they do not have the money to deal with it.
The Payday Loan Details
- The loan term for a payday loan is about 2-4 weeks.
- You will need to provide a valid, government-issued photo identification card, proof of income, and banking information during your application.
- Payday loans are typically based on how much money you earn. The average payday loan is around $500. But, the amount you can receive depends on the laws and regulations in your state, and your ability to meet the lender’s criteria.
- The loan amount and interest rate will largely depend on the payday lender, your financial history, and your state of residence.
- Payday loans are convenient, short-term financial solutions for borrowers who need quick access to cash. However, they can be expensive due to their high interest rates and hidden fees. Therefore, you can obtain the quick funds you need, but it will be difficult to repay a payday loan.
What is The Difference Between a Secured and Unsecured Loan?
Secured loans are guaranteed by an asset, usually some form of collateral. A loan can typically be secured by a car, a house, or something valuable. Through a secured loan, you can often get lower interest rates, qualify for more money, and will likely have a better chance of approval.4 5
Unsecured loans can be obtained without offering any form of collateral during the application process. If you do not have a strong credit history and need funds to get back on your feet, an unsecured loan could be tricky to apply for. You may receive high interest rates if you have a low credit score. That means you will pay more over the life of the loan.
How Do Payday Loans Work?
Payday loan lenders will normally require you to show proof of your income during your application. Since payday loans are short term loans, you will have to repay the loan within a short period of time, usually 2-4 weeks.
Helpful Things to Know Before Taking Out Any Loan
When you take out a loan, there are some steps you can take to protect yourself.
- Read and understand the contract: A loan contract is a legal document and should be handled as such. Do not sign anything that you do not understand. Ask your loan agent to discuss the terms and conditions with you before you sign.
- Communicate with your lender: If you’re late on a payment, try calling the lender or financial institution to explain your situation. Some lenders may be willing to work with you to find an alternative solution.
What are Some Alternatives to Payday Loans?
Payday loans are designed to cover short-term expenses, and they can be taken out without the use of collateral. Because payday loans are risky, lenders can charge high-interest rates, which can vary depending on the applicant’s state lending laws and regulations. If a payday loan sounds like it is not the right fit for you, then you could consider either a personal loan or a title loan.
A personal loan is a type of loan that individuals can obtain from a bank, credit union, or online lender to meet their personal financial needs. Unlike a mortgage or an auto loan, which are used for specific purposes (like buying a home or a car), personal loans are typically unsecured loans. That means they are not backed by collateral such as a house or a car. Instead, personal loans are granted based on factors like the borrower’s creditworthiness, income, and ability to repay the loan.5
A title loan is a type of secured loan where borrowers use their vehicle’s title as collateral. It is also known as an auto title loan or car title loan. With a title loan, the lender assesses the value of the borrower’s vehicle and offers a loan amount based on a percentage of that value.1 5 The borrower temporarily transfers the vehicle’s title to the lender, typically while retaining possession of the vehicle, and continues to use it during the loan period.
Want to learn more about personal loans and title loans? Max Cash® is here to help you stay informed! Click here to access our blog! You can learn more about applying for the financial help you need through a variety of loan options.5