You might be in financial difficulty or looking for loans. But, some people do not know even which loan would be perfect for their required financial situation. So, here is a guide to payday loans vs personal loans. Personal loans are amounts that people get from financial organizations like banks or private lenders. They have amounts ranging from $1000 to $50,000 and the installment can be divided for many years. Payday loans on the other hand are of less amount like $500 as an example and are for a short time. Mostly these are provided by the payday lenders with weeks.
Payday loans vs Personal loans – What’s the difference?
Whatever financial difficulty you are in, you can use both of these loans to compensate for the current demands. But, you must understand both of these terms and how these loans can help you. They may seem similar but have quite differences.
Your loans are a great amount and you will be paying it over monthly or yearly installments as decided with banks. Some people also take this amount in the form of credit from credit unions. Such types of loans can go to even 5 years. On the other hand, payday loans are for 2 weeks or so. It could be for $300, $400, and $500 for your short-term needs. You can even get these again and again as they are for a short time but it comes with an additional fee.
The table below highlights the personal loans vs payday loans:
|Personal loans||Payday loans|
|The loan that you can take||$1000 to $50,000||$500|
|Loan period||2 to 5 years||2 weeks|
|How much APR is added?||It ranges between 6 to 36% APR||~400% APR|
|Does it require a credit check?||Yes||No|
How does a personal loan work?
A borrower can take a personal loan from a bank or private lender. The bank has some strict rules like if you want a $10,000 loan, you must have a credit score of 720-750. The APR is less compared to the Payday loans and you have to give a monthly installment. The interest rate automatically ads in the amount that you will be paying for the loan. Now, personal loans are much easier and the best choice in the debate of Payday loans vs personal loans.
Benefits of a personal loan:
- You will be paying back the amount in fixed monthly installments as you have discussed with the lender.
- These are highly secured loans and you do not have to worry about losing any asset.
- You can use the personal loan for any of the reasons like education, home renovation, wedding, etc.
Applying for a personal loan:
- Firstly, you should check your credit score and see if it matches the requirements of the bank.
- Now, see how much amount you need.
- You can even check through the banks about the credit score. Some people prequalify with lenders for better results.
- Apply through the lender and make sure to discuss the interest rate, time, and the installment before.
How does a Payday loan work?
A lot of people still get confused about Payday loans vs personal loans. Now, they seem like same as they both are for your personal use. But, payday loans are for a short time and it is a fast process. You can go to the bank or any financial lender for this loan. They will give you a cheque or directly transfer the amount to your account. But, you have to give an additional fee that will increase every time you take this loan.
Benefits of a Payday loan:
- People who are in badly need of money and do not have a good credit score can get this amount.
- It is a fast-funding method.
- You can use this amount to use for virtual payments as well.
How to get out of Payday loans?
You might have got the best payday loans which seem like a great attraction at the start but now you are in so much debt. Some people take out payday loans from different banks and now they are stuck as they do not know how to pay these amounts in 2 weeks to the bank. To get out of this debt, you can take a personal loan to pay every payday loan you ever took. You can also use your 401k if you have to get out of the debt as fast as you can.
Is a payday loan secured or unsecured?
It comes in the type of unsecured loans as the lenders are not allowed to take any asset of the borrower. Moreover, it is of less time and the borrower has to quickly pay the amount.
Is a personal loan a better alternative to a payday loan?
Firstly, a personal loan is much better and highly cheaper than a payday loan in which you have to return the amount with interest in 2 weeks. A lot of borrowers cannot return the amount so quickly. Some private lenders even provide some amount as a bonus time in which they can earn the money to pay back in personal or home loans. The APR is highly expensive for people in Payday loans.
Are Payday loans easy to give back?
Payday loans sound like a great idea and seem attractive to get $500 easily without a credit check. But they are harder to pay back than a long-term loan because you have spent the money in your financial difficulty. Now, you will be paying back the lender or the bank a very higher amount compared to the amount they gave you.
Can a Payday loan help your credit history?
No, it does not. Consider it this way that it does not even require your past credit history. So, why will it help in any improvement? Even if you are giving the money to the bank on time, there is no way it will help to improve your credit score. You must know that a lot of people get late or face hurdles in paying back this loan. It leads to hurting their credit scores in the future. So, in the debate of Payday loans vs Personal loans, payday loans will increase your financial difficulties more than you can think.
In payday loans vs personal loans, both get you funding but a personal loan is always recommended to people. You should never risk borrowing money for such a short time with so many high-interest rates. As you have to pay it back asap and things can become more difficult for you. So, make sure you are making an informed and wise decision and go for the personal loans.