Payday vs. Personal Loans: Feel the Difference
Every type of loans – be it a personal, a payday or an installment one – has its own distinctive features. It’s a great idea to study them and find out all the differences before you borrow the money. Otherwise, you run the risk of taking out the loan you don’t really intend to take. For instance, you may get a personal loan instead of a payday one, or a payday loan instead of a personal one. There are many variants, but the outcome is always the same – you realize your mistake only when it’s too late to change anything.
In order to save you from making such a mistake, we’re going to describe the difference between personal loans and payday ones. We’ve chosen the key aspects to compare these two types of small cash advances:
Payday vs. Personal: the Difference Is Evident
We’ve chosen the key aspects to compare these two types of small cash advances:
Period of credit processing
Payday loan is processed in the shortest possible time. As a rule, a client gets approval within 24 hours after the application was submitted.
This is why this type of no credit check cash advances is so popular with modern customers. Finding themselves in an emergency financial situation – for instance, with serious utility or tuition debts – they don’t see a better option than to take out a payday credit.
Personal loans, in their turn, are processed much longer; it may take a lender up to two weeks to approve your request.
The thing is that such cash advances are provided for a longer period of time, and the sum itself is greater than in case of payday loans.
Period of repayment
Payday loans. They are processed and approved within a day or two. Repaid on a tight schedule. Borrowers have from week to one month to return the money.
Payday loans note: Some lenders, however, offer more flexible credit terms for the clients who are unable to repay their cash advances in due time. In such cases, they extend the loan term up to several months.
Personal loans. As for guaranteed personal loans, they are given for a period of several months up to 5 years and repaid in a series of equal payments.
It’s connected with the fact that this type of microcredits allows clients to borrow a greater sum of money, which can’t be returned in full in one single payment.
Level of interest rate
Payday loans have, as a rule, an extremely high percentage rate.
This is because lenders need to protect themselves and their funds from “risky” clients, and it’s easier to charge a big interest in cases of short-term cash advances. Just think of it: the average percentage rate for unsecured payday microcredits is around 33%, which equals almost 1000% per year.
Small personal loans have a lower percentage rate.
Such microcredits work in a different way: they presuppose a greater sum of money, a longer term, and a scheduled system of repayment with a lower percentage rate. The latter depends on a number of factors, but generally it varies from 6% to 36%.
Necessity of credit check
In cases of payday loans online, there is no credit check at all. Such cash advances are connected, as a rule, with minimal sums of money and limited credit periods, so lenders avoid extra checks.
It is very attractive for borrowers with bad credit or absence of credit history, as they don’t have to worry about the lender’s decision.
Unsecured personal loans do require certain credit check, thought its severity varies from company to company.
Some lenders perform a detailed examination of the person’s history, while others only check if a borrower has serious debts. In any case, some people – the ones with poor history – are eventually refused in online personal loans with credit check.
Payday loans. As in the case with credit checks, payday cash advances do not demand any collateral.
Sometimes, lenders ask their clients to provide them with references or bank details.
Personal loans don’t imply any co-signer either.
Note: In some cases, however, a credit company may ask a borrower to find someone with a good credit history to co-sign on his advance. This concerns, first of all, people having poor credit or no credit history at all. The co-borrower will be responsible for the person of the loan if the borrower is unable to return the whole sum in due time.
Benefits of Personal Loans
Summing up, we can say that small personal loans:
- have a reasonable interest rate;
- let borrowers obtain a greater sum of money;
- imply a scheduled repayment system;
- have a longer credit term;
- do not require any collateral (except certain cases).
As for the disadvantages of no teletrack personal loans, there are actually only two of them:
- They can’t be processed and approved instantly;
- They imply certain credit check.
Which Type of Loan Should I Select?
The conclusion is evident:
Online payday loan. If you need a small sum of money within the shortest possible time and don’t feel like undergoing a credit check, your best choice is an online payday loan. But be ready to return the whole sum in one big payment, summing up the total amount of your cash advance with quite a pretty interest.
Unsecured Personal loan. If you need a greater amount of money and don’t feel nervous about credit checks, why not take out an unsecured personal loan? In this case, you’ll have to pay out your debt in smaller payments during several months or even years. The percentage rate will be not big (especially if your credit history is all right), and you won’t have to overpay excessively.
Why do people confuse payday and personal loans? Maybe, because they don’t really know the hallmarks of these two credit types. Actually, personal cash advances are far more like installment ones. They have almost the same credit conditions and terms; the only difference is that personal loans can be borrowed online, which is impossible in cases of installment microcredits. Besides, the former are approved even for people with poor credit and no credit history at all.
This is why, before you borrow the money you need, take time to study the features of different types of loans and only then select the most suitable variant. Take this information into consideration and weigh the pros and cons of payday and personal loans.