You may think payday loans and bank loans are the same, but they are very different. Both are viable options if you need financing for the purchase, but you should consider all of your options before making a decision.
As such, today we’re looking at some of the top things you need to know about payday loans and bank loans.
Payday loans and personal loans differ mainly in three ways: how much you can borrow, how much interest they charge, and how long you have to pay them back. Compared to bank loans, payday loans offer smaller loan amounts, higher interest rates, and shorter repayment terms.
WHAT IS A PERSONAL LOAN?
This is a high interest rate unsecured loan which is especially useful in times of need. Borrowers repay the loan amount when they receive their next salary or other source of income after loan approval. Because payday loans are designed specifically for working professionals, they are very beneficial. You can use your loan for anything you want by purchasing moped and moped insurance.
Personal loans can be used by salaried professionals even if they have exhausted their salary at the beginning of the month. Despite their high interest rates, payday loans are an attractive option. Paying rent, EMIs, and living expenses are common uses for these loans.
WHAT IS A PERSONAL LOAN OR A COMMON BANK LOAN?
The purpose of a personal loan is to cover expenses such as weddings, renovations and vacations. The loan amount can be spent as the borrower wishes. Based on the borrower’s credit rating and ability to repay the loan, the loan is approved. A fixed monthly payment plan is generally used to repay the loan. A bank’s interest rate on a personal loan varies.
WHAT ARE THE DIFFERENCES BETWEEN PERSONAL LOANS AND PAYDAY LOANS?
Here are the main differences between the two types of loans:
Time based rates. Variable rate personal loans reduce interest over time because you can only pay interest on the outstanding loan amount, while payday loans increase interest over time. The interest rate on a fixed rate personal loan remains the same for the entire term of the loan.
Fees and interest. Interest rates on personal loans range from 6% to 23% per annum. For loans over £2,000, payday loans have an interest rate of 48% but can charge up to 20%. The actual cost of the loan can therefore be extremely high.
The cost. A payday lender may charge you several things, whereas a personal loan is usually fixed and secured by your assets.
COMPARISON OF PERSONNEL LOANS AND PERSONAL LOANS
Personal loans and payday loans mainly differ in their terms. The duration of a personal loan is generally less than one month, while that of a personal loan is at least two years.
As a debt consolidation loan or to pay for an emergency, personal loans have a lower interest rate than payday loans. The maximum amount for payday loans is usually less than £500. Depending on the company, you can borrow up to £100,000.
A personal loan is much easier to obtain than a personal loan. A payday loan store can provide you with a loan within 30 minutes if you stop. Processing a personal loan can take a few days.
Only personal loans appear on your credit report, a lesser-known difference between payday loans and personal loans. Your credit score will increase if you take out a personal loan and make payments on time. You can qualify for better loans and interest rates in the future if you do.
As with payday loans, personal loans are often unsecured, so no property or assets back them. You cannot be seized by the lender if you default on a payday loan or personal loan.
Personal loans are always more expensive than personal loans if you have the choice between the two. Consider other options if you don’t qualify for a personal loan.
Does your boss allow you to ask for overtime or sign up for a side job? Is it possible to borrow money from family or friends? Such alternatives are better – and cheaper – than payday loans.