Category: Lenders

Payday Loans vs Personal Loans

If you’re ever in the need of a loan, understanding the main differences between payday loans and personal loans represents an essential aspect that can influence whether you make the right decision or not.

With this in mind, in this article, we will discuss about some of the main similarities and differences between the two types of loans, and attempt to give readers a better idea on what may be suited for them, based on the financial situation that they are dealing with.

The similarities

Both personal and payday loans consist of borrowing a small to medium amount of money, and paying it back within the agreed timeline. Both consist of interest fees, depending on the sum that you want to borrow, the turnaround time for paying back your loan, and last, but not least, the agency that you are getting your loan from.

The differences

Personal loans are considerably cheaper when compared to payday loans, yet generally require borrowers to have a good credit score, to be fully eligible. In case you do happen to have a good credit score, make sure to do all the needed research and choose the company that seems to suit you best. If you do not, then chances are that you will be eligible for a smaller, yet, still viable, payday loan, especially if you’re dealing with a financial emergency.

Payday loans are normally meant for people with little credit, no credit at all, or even bad credit. They are popular for the fact that they’re issued quickly, and do not require too many documents to be submitted. While you will definitely be asked for identification documents, and proof of employment, or monthly income, some lenders also require a checking account. Based on this, if you don’t have the time needed to go through the processes required for a personal loan, then, a payday loan might just be a considerably better option for you.

Personal loans can be repaid over a few months, or even years, with low, monthly or bi-monthly payments. They are also known for carrying lower interest rates, especially for bigger sums. Based on this, you can expect to save more with a personal loan, when compared to a payday loan. Current studies have shown that normally, a person borrowing $100 form a payday loan agency, can expect to pay back around $10-15 in interest fees. Of course, this depends based on the agency that you are getting your loan from, which is why research is essential.

On the other side of the spectrum, payday loans are expected to be paid back within a couple of days, or weeks. They are meant to help bridge an income gap, and help you get your hands on some immediate cash, whenever you are dealing with any sort of emergency financial situations, such as your car breaking down, needing do undergo a medical procedure, clearing debt and more. Additionally, it is often recommended that payday loans are not taken too often, as this can lead to more debt in the long run, while putting you on the path of living pay check, by pay check, which is unwanted by most people.

Personal loans are also known for the fact that they are more flexible in terms of the sum being borrowed. While most payday loan agencies offer loans ranging from $50 to around £1,000, personal loans can even reach a few hundred thousand dollars, depending on your credit score, income and the collateral that you are willing to offer as guarantee.

By understanding these key differences, you will be able to make a more informed choice, and help yourself determine which type of loan is better suited for you. To put things better into perspective, if you need some quick cash, which you can repay back quickly, then payday loans should suffice, regardless of slightly higher interest rates (especially if your credit score isn’t too good). On the other hand, if you need more money in the form of a loan, extended over several months, it’s best to reach out to your bank, and other long-term loan companies, as they may be able to issue offers that better suit you and your current needs. There are, of course, some eligibility issues, but by doing some smart market research, you’ll quickly be able to determine whether you are eligible for either payday or personal loans, or even both, in case you have been blessed with a good credit score.

Based on everything that has been outlined so far, both personal and payday loans are meant for different situations. Most of the times, it should be quite easy to categorize whether you are in need of a payday loan, or the rather.

How Payday Loans Help Millions of People

During the last couple of years, the payday loan industry has boomed in areas from all around the world, considering the fact that most agencies offer customers a quick and efficient way to get access to some emergency money that they can use in case any event that requires financial aid takes place.

However, regardless of this, not many people understand why payday loans have been proven to be beneficial for millions of people in the United States alone, and many more million in other regions of the world. Well, this lack of understanding is mostly due to the controversies surrounding payday loans. Luckily, considerable action is being taken by the US Department of Justice alongside with state regulators, who are actively targeting mysterious payday loan providers, which tend to engage in scammy practices of all kinds. In return, this helps the market stay clean with only providers that are honest, and willing to carry out all of the services that they advertise.

For those who do not know, payday lending is a relatively simple process. Imagine that your car breaks down, and that you have already reserved a holiday weekend a few hundred kilometres away, or you have to get somewhere as soon as possible, but you don’t have any cash left for the repairs. As long as you’re employed full time and receive a monthly salary, you may be eligible to get a payday loan, which represents a sum of money, typically between £50 to £1,000 given for a limited period of time, usually around two weeks.

Most of the times, the normal payday loan transaction is completed in around 15 minutes, which is exceptionally fast when compared to the turnaround times for banks. Some agencies may even provide you with the money during the same time, thus making everything considerably quicker. Upon applying for a payday loan, you’ll only have to submit a couple of documents, including personal, employment and bank account information, which eliminates the need to write complex loan applications, have your credit checks, offer much as collateral and simply waste time in banks.

While banks are definitely better suited for those who would like to take a loan extended over a couple of months or even years, payday loans are meant for people who need a low amount of money immediately, and do not wish to borrow it from friends and family, due to the issues that they can arise.

The benefits mentioned above only represent the first reason on why payday loans are currently helping out millions of people from all around the world. The second reason is a bit more complex.

According to recent reports, it seems like tens of millions of middle-income American citizens are forced to live pay check to pay check, which is quite troublesome, considering the fact that most of these people lack an emergency fund and do not have saved money to use in case of a financial crisis. While they do their best to make sure that they live well, and that all of their obligations are paid so they not accumulate debt, any surprise expenditure can be quite disastrous, as they’ll quickly run out of money. Some examples of this include an emergency doctor’s consultation, funeral, wedding, being demoted from a position, needing to help someone else, higher taxes and so much more. Such events can then encourage the appearance of a bigger need for short-term credit, thus the need to apply for a payday loan.
Other people tend to worry about the taxes associated with these form of loans. While they are definitely not very small, the price is understandable considering the efficiency of payday loans, and the fact that no bank in the world is capable of providing a similar service due to the high transaction costs.

In the long run, it is not recommended to live payday loan by payday loan, however, as this will just lead people to accumulate debt, and attempt to clear the pending loan, before asking for the next one. This leads to another benefit of payday loans, and that is the fact that they strive to encourage people to budget better, and find smarter ways of working with their money, thus paving the way to financial freedom.

Based on everything that has been outlined so far, the reasons mentioned are some of the main ones that really explain how and why payday loans help millions of people throughout the world, and how they have managed to become a billion dollar market in less than a few years. Payday loans will be around for many years to come, so in case you’re ever in need of some emergency cash, then chances are that there’s an agency open closer than you might imagine.