Microloans versus Car Title Loans

“It’s easy to get a loan unless you need it.” Norman Ralph Augustine

Do you urgently need a short-term cash injection; What does your credit profile look like? Are you able to trim any more fat off your budget? How do other people cope? I suspect that most of working adults across the globe are asking similar questions. I am not sure how other people get through every month, except to say that we are all in the same boat. Unfortunately, the harsh reality of the current global economic crisis, with stagnating wages and rising costs, is that it is very easy to run out of money before your next month’s pay arrives.

There are a number of short-term or microloans offered by different financial houses, including car title loans Anaheim. What is a microloan, and how does it differ from a car title loan?

Microloans

A microloan is a small loan that is available help small businesses to start up and expand. They tend to be so small that commercial banks are not interested in offering them. Therefore you need approach a micro-lender: a non-profit organisation The average microloan is about $13 000 but can be as large as $50 000.

Microcredit interest rates range from about 20% right up to 100%. The average loan is repayable each month over a period of up to six years. These interest rate figures are very high for a business loan; however, it needs to be taken into account that people who apply for microloans are unable to procure a loan from a conventional bank.

Car title loans

On the other hand, a car title loan “is a type of secured loan where borrowers can use their vehicle title as collateral.” It is usually a short-term loan, with loan amounts ranging between $1000 and $15 000, and interest rates of up to 300%. It is also repayable in one amount within 30 days of having procured the loan. The challenge facing most car title loan recipients is that the interest rate is so high that they end up having to renew their loan several times; thus, setting of a vicious debt cycle.

If you apply and are granted a car title loan, you are required to hand over a hard copy of your vehicle’s title that the financial company will keep as collateral or as the guarantee that you will repay the loan. If you are not able to repay the loan, then the borrower will repossess your vehicle in  lieu of the loan repayment.

Final words

The reason why microloan interest rates are so much higher than interest rates offered by conventional banks is that the average person who will apply to borrow money from a micro-lender has a higher risk profile. In other words, there is a greater chance that he/she will be unable to repay the loan.

It is obviously advisable to stay out of debt and not to incur any extra monthly expenses. However, it is sometimes necessary to borrow money in order to survive. Therefore, the secret is to ensure that you pay the loan off within the stipulated timeframe.