What Are The Differences Between Payday Loans & Personal Loans : Payday LV

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When it comes to short-term loans, people generally think of payday loans or personal loans. Even though both these loans are for the short-term and are usually for smaller amounts this is where the similarities end.

Both these types of loans are designed to serve different purposes. A personal loan, for example, can be obtained from traditional banks and is generally used to make bigger purchases or consolidate high-interest debts.

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On the other hand, a payday loan also called a check loan or cash advance is generally used to pay off smaller immediate expenses. If you are seeking a short-term loan and are unsure about whether to opt for a personal loan or payday loan you have come to the right place to get the answers you need. Read on!

What Is A Personal Loan?

Personal loans can be obtained from banks, credit unions, and even online lenders. Unlike most traditional loans, the money lent doesn’t have to be used for a specific purpose. A personal loan allows an individual to spend the money borrowed as they please (no strings attached). As such, personal loans are not the same as auto loans or home loans.

Depending on what institution you intend to apply to for a personal loan these loans can either be secured or unsecured. A secured personal loan would require collateral of equal value in exchange for the money borrowed. Whereas an unsecured personal loan doesn’t require any collateral at all. Of course, secured loans will be associated with a lower interest rate as compared to unsecured loans, as there is less risk involved for the lender.

Even though personal loans are considered short-term loans repayments can be made in installments over the span of typically 1-2 years. Payday LV loans generally require extensive paperwork such as credit checks and background checks before approval is granted. As such, application processing times can vary anywhere from days to even weeks with no guarantees of your application being approved.

The money borrowed has to be repaid over an agreed-upon time span with interest. Interest rates, fees, the maximum amount borrowed, and repayment terms can all vary greatly depending on the institution you are applying to and your current financial situation. This is why it always pays to shop around when looking to secure a personal loan!

What is a Payday Loan?

Payday loans are used to pay for unforeseen short-term expenses that can’t wait. These loans can be obtained from many cash advance storefronts (depending on which state you live in), as well as a variety of online lenders. Some banks and credit unions may also offer payday loan services.

Payday loans are offered in small amounts typically ranging from $50-$1000. It is always best to check up on state laws governing payday loans in your area. In line with the Consumer Financial Protection Bureau (CFPB), most payday loans are capped at a 400% Annual Percentage Rate (APR) with a max. lending amount of $500. Some states allow for a max. lending amount of $1000 while others have much stricter rules governing fees, APRs, and payback terms for payday lenders.

Payday loans are the most common and popular form of short-term borrowing in America. A person can walk into a cash advance storefront and walk out with the money he or she needs within minutes. Today, you don’t even need to go out. Plenty of trusted and credible online lenders will approve payday loans in less than an hour after applying with the money directed deposited in a person’s bank account.

Payday loans have a very short payback period. Most payday loans are due within 14 days or until one’s next paycheck. The entire amount borrowed has to be paid back in full along with any associated fees and interest. This can make payday loans an expensive means of securing quick cash. However, when urgency is of prime importance nothing beats the speed and reliability of payday loans.

Payday loans are unsecured, meaning that no collateral is needed to obtain a loan. These loans are ideal for people with poor credit, no credit, or even bad credit. As there are generally no background checks required even those with a record can apply for these loans without having to fear rejection.

To qualify for a payday loan, one has to be of legal age, have a valid ID, an active checking account, and proof of employment or income.

Differences Between Payday Loans & Personal Loans

Both these loan types couldn’t be more different.

A 2018 U.S. news survey found that most Americans favor personal loans for debt consolidation, home improvements, unforeseen medical costs, automotive repairs, funeral costs, moving expenses, vacations, and weddings. Payday loans were generally used to pay off immediate expenses such as food, rental payments, vehicle repair, etc.

Personal loans have comparatively much lower interest rates as compared to payday loans. If you have good credit, you can likely qualify for a personal loan that has a lower APR than your MasterCard or Visa. This is why many individuals use personal loans to pay for major expenses rather than using a credit card.

Personal loans are normally associated with an APR of 4% to 36%. Payday loans can have APRs well over 300%. However, it is important to remember that the high APR for a payday loan is because of its short payback period.

Personal loan repayment terms are also a lot longer as compared to payday loans. Terms can last from 2 to 7 years in some cases. The maximum borrowing amount is also much higher (anywhere from $1,000 to $100,000). Whereas payday loans have a maximum borrowing amount of $500 in most states and have a maximum repayment term of just 14 days!

The other big difference between these two loan types is that payday loans don’t report activity to the 3 major credit bureaus; Experian, Equifax, and TransUnion. This means that if you do end up being late on payments it won’t negatively impact your credit score. On the other hand, if you do pay back on time you won’t see a positive impact on your credit score either.

Payday loans are a lot easier to apply for and be approved for as compared to personal loans. With payday loans, you can get the money you need almost instantly whereas with personal loans you will likely have to wait a period of days or even weeks before the loan application is approved and funds are released.

Final Thoughts

When the urgency of cash is of prime importance nothing beats a payday loan. However, if the sum of money you need is in the thousands and you can wait for a few days for the payment, a personal loan may be your most viable choice. Not only will the interest rate be much lower but you will also have a lot longer to pay back the loan amount as compared to a payday loan.

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