Accessing the necessary funds when you need them can be a challenge, because there are so many options available nowadays. As a result, it is easy to become confused and choose the most convenient or straightforward loan. This can have negative effects on your credit in the long run, as well as your financial position.
In order to prevent this from happening, it is worth comparing the different internet payday loan options and applying for the most appropriate option for you. Here are the key differences between some of the most popular loans; personal and payday loans.
Key Differences
Firstly, personal and payday loans differ in how they work. This is because payday loans are typically more rigid with their timeframes, whereas payday loans usually provide more flexibility. Personal loans can be used for a range of different scenarios, which makes them the most popular financial option for many.
For example, personal loans can help someone to access funds that can complete a large project such as paying off their mortgage, student loans, or paying for something urgent. This could be emergency surgery or medical treatment if you are uninsured.
Uses
Personal loans have been intentionally made to suit a range of circumstances, which is where the name stems from. There is no restriction on how someone chooses to use a personal loan. Personal loans are usually applied for on an individual basis, which means that anybody can request a specific amount of money within a certain time period to repay it.
Because payday loans have been designed as short-term financial solutions, they usually last around two weeks long. At a glance, this means that there is less flexibility than personal loans. However, this can be used to your advantage when it comes to accessing financial help.
For many, payday loans provide the structure that they need in order to gain control over their finances. Because these loans have been designed with the next payday in mind, there is certainly an element of structure which can help those who struggle with managing their long-term finances.
Approval Time
While personal loans can be categorized as secured and unsecured, the majority of personal loans which are approved on a regular basis are secured. This is because most borrowers and people who take out loans want to get the best possible deal with as much flexibility as possible.
In most instances, payday loans can be approved within 24 hours or applying. This can allow people to focus on what really matters to them and ensure that they can make ends meet faster.
However, one of the main disadvantages of payday loans is that they can require some level of collateral in order to approve. This is because there is no credit check needed, and the banks and money lending companies need to have some type of reassurance that you will pay back the full amount borrowed.
Repayment
The amount borrowed is normally used to predict the repayment timeframe, so that someone can agree to realistic terms before signing a contract. Because personal loans are more flexible than payday loans, the interest rates can vary with the amount borrowed and the time period that is agreed for repayment.
This can mean that personal loans have a slightly higher interest rate than payday loans, however it depends on the amount borrowed and the type of repayment terms.
Payday loans tend to have faster approval because they have stricter time requirements when it comes to repaying the amount borrowed. As the name suggests, the borrower needs to repay the payday loan when their monthly paycheck comes through.
This means that you will need to be sure that your finances allow this additional payment without impacting your regular bills such as utilities and rent.
The Role Of Credit Score
Another considerable difference between the two types of loans is that personal loans vary depending on someone’s credit score. Lower interest rates are usually available to someone with a higher credit score, whereas someone with a poor credit rating is more likely to face higher charges.
Because of this, it can take longer to access the money needed with a personal loan. Money lenders will complete a hard credit check on each individual. This can mean that there are fewer benefits available for someone with poor credit, or for someone who needs access to funds fast.
There is the option to choose an unsecured personal loan. These tend to use collateral as leverage, but they are more suitable for someone with poor credit.
Payday loans can also be advantageous for many because they do not need any credit checks or initial background assessments. This means that the application process for payday loans is much more straightforward.
Because of this, people with poor credit or who have not had the chance to build their credit score are able to access funds when they need them thanks to payday loans. Another key difference is that payday loans are approved much more quickly than personal loans.
Summary
Even though personal loans and payday loans seem similar on the surface, there are several key differences between them. These include how they are repaid and the intended time frame for repayment, as well as the time it can take to get an application approved for each type of loan.
Both personal loans and payday loans have their own unique sets of advantages and disadvantages, and it is worth keeping them in mind when it comes to applying for the right loan for you. Consider your current financial situation and assess how well each type of loan could help you in the long run.
Personal loans typically take longer to approve because there is some level of credit check required. However, they tend to offer more flexibility when it comes to repayments and the total amount that someone can borrow. Payday loans usually have a shorter timeframe because they focus on your next paycheck. As a result, payday loans take less time to approve.
