Difference Between Personal Loan & Payday Loan

What is more expensive, a personal loan or a payday loan? That is the question many people ask when they are looking for extra money. 

People have two options when it comes to borrowing money: a personal loan or a payday loan. If you need a small amount of money to pay for something, a payday loan is what you’ll need. You can get more info here about payday loans and how the process works.

A personal loan and payday loans are two different things. A payday loan is more like a short-term cash advance, while a personal loan is more of a traditional type of lending that gives access to more money over time. While there are many benefits to each, the big difference between them boils down to whether you need more money for the long or short term. If you want more information on what these are, keep reading!

Personal Loan VS Payday Loan

There may come an instance that you’ll need to borrow or loan some money for an emergency or personal use. But what exactly should you apply for, a personal loan or a payday loan? The two may have their comparison, but they are actually different in some aspects. Here are some helpful factors that you need to know about personal loans and payday loans:

Personal Loans are for Expensive Things

Personal loans have more flexibility than payday loans, and they are more suitable for people who need more money on a long-term basis. Personal loans offer more flexibility in terms of the amount you can borrow as well as repayments that cater to your needs. If you want or need to buy something expensive or you have a major home renovation, a personal loan is what you’ll need. 

On the contrary, a payday loan is more suitable for those who want to borrow some money or cash and pay it back within a month or two. Payday loans are more expensive than personal loans since there’s no fixed term in which you need to repay them; they can be returned as soon as your next payday date arrives.

Personal Loans Offer Lower Interest Rates

A Personal loan has a lower interest rate than a payday loan. This is because personal loans are more flexible with repayments and long-term in nature, which makes more sense for lenders to offer a more competitive interest rate. Personal Loans Can Be Taken Out For Longer Periods

Payday loan providers need you to pay back your money within the next month or two, whereas personal loan providers allow up to seven years before repayment starts – this means that if you want the flexibility of paying off your debt gradually, then a personal loan is what will suit you best. 

Personal Loans Offer a Fixed Monthly Payment

Personal loans will be more expensive than payday loans, but the price you pay will remain fixed for your entire duration of repayment. This is a major benefit because if something changes in your life – such as losing your job or having more children to support – then these factors can’t change how much money you need each month, and this means that any personal loan provider should be able to offer a more affordable payment plan without needing an increase from you.

Personal Loans are More Flexible

Payday loans are usually repaid within one year, whereas on top of being offered over longer periods, borrowers also get more flexibility when it comes to paying back their debt: they don’t have to worry about interest rates increasing every time they make another monthly payment.

The more time you have to repay the loan, the more flexible and affordable it will be. Personal loans provide more flexibility in repayment amounts because they are not repaid on a monthly basis. Instead, personal loans typically come with interest rates of between 0% – 12%. 

Personal Loans Need Good Credit Score

A personal loan has a higher chance to be approved if you have a good credit score, but payday loans are more accessible to people with lower scores. Also, if you have a history of missed payments, this lowers the chances of you getting approved for a personal loan. On the other hand, a payday loan won’t be too challenging to apply for since the loan is expected to be paid in full on your next payday.

Payday Loans are Short-Term

Payday lending is limited by law to $500 or less and must be repaid within two weeks time period, so it’s usually not used for anything expensive but instead for quick cash when funds come up short at the end of the month. As with personal loans, this type of loan will require some financial data from an applicant, such as an income statement showing employment status (and salary) and credit reports which show past payment ability. Depending on what information you have on your credit report, it may be more difficult for you to get a payday loan.

Payday Loans can be Taken Out in Person or Online.

Payday loans can be taken out online, or you can go to a money lending office in your area. The first thing they’ll ask you to do is to fill out an application, then provide some necessary financial information (income statement showing employment status), then wait for approval by phone before receiving funds within hours.

As for a personal loan, you can also apply in person at the bank or through an online application with more traditional lenders. The difference here is that a lender will require more information and documentation before approving your loan, which may take longer than payday loans.