Final answer:
The main difference is that a merchant credit card is an unsecured loan, while a title loan is secured using the borrower's vehicle title. Both types of loans require repayment, but the conditions and risks associated with each are distinct.
Step-by-step explanation:
The main difference between a merchant credit card and a title loan lies in the security attached to the loan. A merchant credit card is considered an unsecured loan, which means it's not backed by collateral. On the other hand, a title loan is a secured loan, because it's backed by the borrower's vehicle title as collateral. Therefore, in case of default on a title loan, the lender can take possession of the vehicle. In contrast, if a borrower defaults on a credit card debt, the lender does not have an immediate claim to any specific asset of the borrower, although they might pursue legal action to attempt to recuperate the owed funds.
A merchant credit card allows you to borrow money up to a certain limit to make purchases and requires you to pay back the borrowed amount with interest. This interest rate can fluctuate and typically ranges between 12% to 18% per year. Title loans, often having much higher interest rates, are short-term high-cost loans where the borrower's car title is used as collateral. Payments on both types of credit are required, but the terms and the nature of the obligations differ significantly.