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.
