Personal Loans vs. Payday Loans

Payday loans and personal loans may seem similar but there are some marked differences that set them apart. These two loan types represent different approaches to obtain extra cash in terms of loan period, loan size, qualification, and cost. These loans are great for paying for purchases or expenses you may be unable to afford. This article will help you understand the differences between payday loans and personal loans.

Personal Loans

Personal loans are different from car or mortgage loan as they do not require any collateral. So if you fail to pay back the loan, the bank can directly seize your assets. Typically, personal loans take days to process and you will need to provide documents such as bank accounts, tax returns, pay stubs, and so on. The bank will also evaluate the borrower’s income, credit score, wealth, expenses, and other factors. The interest rate on this loan range from 12 to 30% although you can get lower or higher rates depending on your credit score and other factors they may deem fit.

Pros

Lower Interest Rates

When compared to payday loans, personal loans have lost interest rates. This makes them the better option when you need some handy cash.

Consolidate your Credit Card Debt

You can use personal loans to consolidate your credit card debt since they charge lower interest rates than credit cards. This can be an opportunity to repay your debt faster.

Cons

Longer Approval Process

The approval process of personal loans is usually slightly longer. This is because the loan provider needs to evaluate all the borrower’s documents which can take several days.

High Interest Rates than Some Credit Cards

This depends largely on your credit score, you may be better off with those credit cards that offer 0% introductory APR on purchases for a given period if you are looking for extra cash to make big purchases.

Payday Loans

Payday loans are high interest, short term loans that you must repay on your next payday. They are designed to help employed individuals bridge temporary cash shortages. To set an initial credit limit, most payday lenders will evaluate your employment income and bank account. This can rise with time if you maintain a good record with the lender. Like personal loans, you don’t need collateral or a good credit rating to secure this loan. See more!

Pros

No Credit History Needed

Even with a bad credit score rating, you can get a payday loan.

Small Loan Amount

You can get a loan of a few gifted dollars with payday loans unlike personal loans that are of higher amounts.

Cons

Higher Interest Rates

The average interest rate on a payday loan is 15% which is significantly higher.

You can get Trapped in a Cycle of Debt

You are more likely to get additional loans after your first one. The interest rate can too 1,000% when you renew your loans or get additional loans.

Typically, personal loans are cheaper than payday loans. Personal loans are perfect for those who need a substantial amount, have a credit rating, and can afford to repay the loan installmentally. Payday loans are perfect for those with poor or no credit history but need money in a hurry. Check out this site: https://en.wikipedia.org/wiki/Payday_loan