11 Sep Payday Loans Vs Personal Loans: Everything You Need to Know
Looking for an immediate loan option? If yes, then, read this blog for Payday Loans Vs Personal Loans first, to know which of these two famous urgent loan options better suits you………
Few things in life are more stressful, such as being hit with an unexpected expense and not being able to cover it. Your car died and you need to get it fixed; a medical emergency occurred that has you flooded with bills. Or your spouse was laid off suddenly and the loss of income causes you to fall short of this month’s rent — any one of these scenarios can be catastrophic.
When you’re faced with such an urgent expense, your instinct may be to borrow money wherever you can get it. No matter how much the interest rate or long-term cost is. But the decisions you make in those high-stress situations can have a long-term impact on your financial well-being.
So, in order to avoid such situations, and to best utilize the borrowed money, it is important to first know about the loans you are considering. To, help you with this, here we have discussed the two most popular immediate loan options on the market: Payday Loans and Personal Loans.
Payday Loan Vs Personal Loans:
Here in detail, you will learn the difference between payday loan and personal loan…
Payday Loan:
A Payday Loan offers short term lending to those broke for cash. Usually for the amount is $500 or less, and this type of lending is designed to help people cover emergency costs or get ahead of bill delinquency.
Payday Loans require little or no credit, and your credit score is not affected by an inquiry. Virtually anyone can be approved for a payday loan, that’s why they are popular for their convenience.
Personal Loans:
Personal Loans usually have a fixed interest rate and payment period which makes them a more stable alternative to payday loans. But this added security isn’t given to just anyone.
Unlike payday loans, personal loans require a credit check, which will slightly ding your credit score. Since lending is based on credit history, personal loans are a little more difficult to secure than payday loans, if your credit score is less-than-stellar.
Pros and Cons of Payday Loans
One of the biggest pros of payday loans is that it doesn’t impact your credit. Whether you have bad credit, decent credit, or really great credit, you can qualify for short term cash loans.
If you don’t have quite enough to cover a bill this month, the payday loan can help. However, there are disadvantages to a payday loan as well. Therefore, understanding the pros and cons of payday loans is important before the lending process.
You Might Refer Reading: How Do Payday Loans Work?
Pros of Payday Loans
No Impact on Your Credit Score: With payday loans, you can get a loan without it touching your credit. This can be a great short-term solution to an immediate cash-flow need.
No Credit History Required: You also don’t have to have a good credit history to qualify for short term cash loans. Just a job, and ID, and perhaps a few other requirements depending on your state.
Small Loan Amounts Available: If you only need $50-$200 to pay a bill or two, payday loans offer small amounts. You don’t have to get more than you need at the moment.
Fast Distribution of The Loan: Payday loans are often sought if money is needed immediately. Payday loans offer an easy way to borrow cash quickly.
Cons of Payday Loans
High-Interest Rates: According to the Federal Trade Commission reports, payday-loan APRs have exceeded 390% in some states. That’s a huge amount. They also state that the average interest rate is 15% a month, which is still a very high APR.
Hefty Fees: Typically, a payday loan will be paid off by the time you receive your next paycheck. If something else prevents you from paying back the loan, there can be a large fee involved.
Because of their high-interest rates and short repayment terms, payday loans can cause a cycle of debt. One unpaid loan can lead to another, which results in you in paying more in interest than you originally borrowed.
Pros and Cons of Personal Loans
Taking out a personal loan has its own set of pros and cons. Unlike payday loans, personal loan interest rates tend to be lower and repayment schedules are usually longer. However, taking out a personal loan does impact your credit score.
There are many reasons to choose a personal loan for your financial needs. So, in order to make the best choice, it will help to understand the good and bad of using this loan type.
Pros of Personal Loans
Lower Interest Rates: Personal loans are influenced by your credit history. If you have a great credit score, then it is possible to qualify for a loan with a very low-interest rate. This is good news for your long-term financial goals.
Flexible Use: Personal loans can be used for just about anything. Personal loan interest rates are often lower than a credit card. This means that personal loans can be used to consolidate high-interest debt as well. They can also be used for personal events like weddings or vacations.
Large Loan Amounts: Just like the interest rate, the amount of your personal loan depends on your credit history, among other things. However, with the right circumstances–good credit, steady income, limited debt – you could easily qualify for a large personal loan. This could be the solution you need for that next step in life.
You Might Refer Reading: Benefits of Personal Loans
Cons of Personal Loans
High-Interest Rates: If your credit history isn’t that great, personal loans can come with high-interest rates. This largely depends on your lender, the loan amount, and your credit history. What is a pro of personal loans, can also be a con.
Fees and Repayment Penalties: Again, depending on the lender, some personal loans can come with unexpected fees. It helps to look at these details in advance before you sign the dotted line.
There can be fees for applying and for administration costs. However, some lenders even charge a hefty fee if you repay the loan early. This may seem counterintuitive, but lenders don’t see it that way. Therefore, it is important to know what you are signing up for.
Key difference: Payday Loans Vs Personal Loans
- Payday loans are perfect for small amounts that are required to be paid within a month, whereas personal loans involve a substantial amount that can be paid over a few months or years.
- Online Payday loans do not require you to have an excellent credit history, whereas the eligibility and interest rate of a personal loan depends on your credit history with the lender.
- Payday loans require you to guarantee your next paycheck, while personal loans require the borrowers to have a steady source of income and a strong credit history.
- Payday loans are usually offered by lenders that deal with check-cashing service and short-term lending. While personal loans, on the other hand, are offered by banks, credit unions, and online lenders.
- Payday loans can be rather expensive since the rate of interest is quite high and if you fail to pay on time or request a rollover, you are charged extra financial fees. While the personal loans are cheaper as compared to payday loans, but require you to have exercise financial discipline.
Payday Loans Vs Personal Loans: Which One is Better?
Knowing if payday loans vs personal loans are the better option is entirely dependent on your unique situation.
There are many things to consider before when choosing a loan. Knowing the pros and cons of both loan types is the first step.
Secondly, ask yourself how your needs are impacted by the pros and cons. For example, ask yourself these basic questions:
- How much money do I need and for how long?
- How is my credit history?
- What is my plan to repay this loan?
- How will this loan impact my credit score?
Your answers to these four questions can help you choose between payday loans vs personal loans. Your next step is to do thorough research on the type of loan you have selected based on previous questions.
For example: let’s say you choose payday loan over a personal loan, then try finding answers to question like:
- How Do Payday Loans Differ from Other Types of Loans?
- Is Payday Loan Variable or Fixed Rate?
- Is A Payday Loan an Installment Loan?
- What Need Are Payday Lenders Filling?
- Why Do the Majority of Payday Borrowers Take Out Payday Loans?
- Why Do So Many People Use Payday Loans Despite the Potential Consequences?
You now have the knowledge you need to find the best loan for your situation.
Does your financial situation limit you from getting a personal loan? Having all the necessary information sets you up to make the best decision for your finances.
Conclusion
Taking a loan is a big decision that will directly affect your financial health. So, you need to be well-informed about the type of loan to avail, its benefits, and its repercussions too.
Understanding the key factors of Payday Loans Vs Personal Loans will help you on your financial journey. Both loans have their own pros and cons to consider.
Therefore, consider taking the time to evaluate all of your choices. Knowing your financial needs and how to meet them is the first step in choosing the right loan. Look for ways to meet your needs without going into debt as it will pay off tremendously in the long run.
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