Do you urgently need additional money? Looking for instant direct deposit loans? When you are feeling pressed for funds, you may look for various lending options. Personal loans and payday loans are among the top choices for borrowers these days. – Payday Loan Vs. Personal Loan
While there are some common factors, these lending options also have a difference in the amount you can request, the interest rates, and the repayment term. In this article, we are going to discuss the pros and cons of each crediting product.
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Payday Loans and How They Work
The Pew Charitable Trusts states that twelve million Americans take out payday loans annually, spending $9 billion on loan charges. Statistics show that the majority of borrowers pay more in fees than they initially received in credit. The average online payday loan consumer is in debt for 5 months of the year, spending about $520 in fees to repeatedly borrow $375.
The standard fee at a pawnshop or storefront creditor is $55 per two weeks. A key fact about an instant payday loan is that it is connected with the client’s pay cycle. The creditor gains direct access to a borrower’s bank account. It ensures the creditor can gather the borrower’s income before other bills are paid.
Thus, the main demands are to have a regular monthly income and a checking account to qualify for a payday loan. Due to the fact that the fees on payday lending are quite high, many consumers can’t afford to repay the debt on time and tend to reborrow or renew the loans. The CFPB has found that 80 percent of respondents request new payday loans within two weeks of repayment of the previous debt.
Personal Loans and How They Work
A personal loan is a bit more challenging to obtain but the interest rates and fees are usually lower. This lending option is often utilized for debt consolidation as it’s a safer variant to access credit. Payday loans are issued for a shorter time (usually for two or three weeks). A personal loan can be obtained at the local bank, credit union, or an alternative lender. This option can be secured and unsecured.
The first variant demands some valuable assets to back up the debt. A borrower needs to understand the responsibility and the need to pay the loan off on time. Otherwise, the auto or house can be seized by the creditor. However, personal loans can be taken out for several months and even years. They can serve as a great helping hand for big-picture expenses.
Payday Loan Vs. Personal Loan-Payday Loan Vs. Personal Loan
Both of these lending options can offer you additional money that should be returned within a stated period. Both options may be utilized for covering unpredicted expenses and financial emergencies. On the other hand, payday loans are usually taken out in small amounts till the next salary day.
There is no need to secure this loan with any collateral but they are more expensive because of that. While a payday loan app can show all the fees at once, some payday lenders have hidden charges and high-interest rates. A personal loan may be issued by conventional financial institutions such as credit unions or local banks. The repayment term is usually longer while the interest is lower.
- A smaller amount can be obtained
- Higher interest rates
- Repay on the next salary day
- Hidden charges can apply
- Not reported to the crediting agencies
- Lower personal loan rates
- Longer repayment schedule
- Need to have proof of regular income
- A larger sum can be obtained
- Personal loan bad credit is available
- Reported to the crediting agencies
Questions to Ask Yourself
Do you still have some doubts? Which lending option is best suited for your current financial needs? Here are several questions to help you find the right option.
- Do I really need a loan? When you live paycheck to paycheck and need to fund an immediate cash need, taking out a loan may sound suitable. However, you should ask yourself if this debt is worth paying off. Do you want to make a big-ticket purchase? Is it a real emergency that can’t wait? If the situation can wait a few months it’s better to save your own cash.
- Will it affect my credit score? Taking out a payday loan for the short period won’t affect your rating. Taking out a personal loan for several months or years may seriously affect your credit and your ability to obtain lending options in the future. Remember that if you default on making regular payments, your score may lower. As a result, you won’t be able to obtain flexible rates and terms next time you are in financial trouble.
- Can I afford to return the loan on time? It’s important to understand that any loan is your debt and you are responsible for its repayment. Do you have a regular income source to make on-time payments? Can you afford to keep up with monthly installments for a personal loan? Will you be able to repay a lump sum on the next salary day to cover a payday loan?
- Are there alternative options? A payday loan may be issued even with poor credit but getting a personal loan requires a good or excellent score. If you can’t qualify for a lending solution, you may try alternative ways such as getting a cash advance, using a credit card or asking your relatives and friends to help you.
In conclusion, you should review the terms and rates of each lending option to compare the products, the sum you can get, and the repayment conditions. Answering these questions and knowing all the nuances will help you make the best decision.