There are so many different loan types available and this makes it hard for people to determine which one is best for them. Payday loans have become very popular in the recent years, they are very fast to get and need very little qualifications. Typically, you have 2-4week to pay off the payday loan and the interest rates are high. Personal loans on the other hand have plenty of requirements and will take a little more time.
So, what are the main differences between a payday loan and personal loan.
What is a payday loan?
Payday loans are short term loans with high costs. The lender gives you a certain amount of money for a period of 2-4 weeks. This means you have to make the repayment within that period, typically, the next paycheck. Getting a payday loan is very easy, lenders have very minimal qualifications and will not require collateral nor check your credit score before they approve your loan. You can receive the payday loan minutes within the application.
The amount you qualify for is significantly low but gradually increases every time you clear the payday loan payments on time. As long as you are over is, have government ID and an active bank account it is easy to qualify for a payday loan. There is a limit to how much you can borrow and it is set by the state or country.
One major downside of payday loans is that the interest rates are significantly high. If you do not make the payments on time, the lender imposes more interest on the loan until you can clear the payments.
Pros of payday loans
Thee is no credit check – this means lenders do not check your credit history. You can borrow cash even when you have a por credit history.
Convenient and easy to apply and obtain a payday loan
Cons of payday loans
It has an extremely high-interest rate – the interest rate is higher than most another type of loans
You could potentially end up in a debt crisis if you do not make all the payments on time.
Personal loans are way cheaper than payday loans, especially when you have a relatively high credit score. Here, you can borrow more money than when you take out a payday loan. The lenders offer different repayment periods ranging from 2 to 5 years. Lenders carry out a credit check before they approve you loan.
People with good credit scores are more likely going to be approved for this type of loan at better rates. You can also get a personal loan with a bad credit score but the interest rates will be much higher. Depending on several factors like the amount you want to borrow and the lender, personal loans can be secured against your assets like mortgage.
Pros of personal loans
The loans repayments are fixed on a monthly sum making it easier for you to budget and clear the loan.
Cons of personal loans
If you have a poor credit, you will pay more on the interest rates
You are tempted to borrow more money than you need.