From the onset, both look pretty similar. Both lend you money for an interest, right? But they serve vastly different purposes. So, if you need some urgent cash, it will be a great idea to know the main differences among them and decide which one of these loans better serves your needs.
They both depend on many external factors like ease of getting a loan approved, interest rate, availability.
A payday is a short term loan, often with a maximum payout of around $500. They are relatively easy to apply and get approved for and usually have a tiny window of time to repay. They are often used to get through your financial needs before the next paycheck and are often considered a short term solution for your money problem rather than a long term one.
Payday loans have relatively higher interest rates and are designed to get you through hard financial times with an infusion of cash. Payday loans are often a great way to pay off small expenses that may otherwise incur a fine like house rent, utility bills or to fix your car, without which you won’t be able to go to work tomorrow. Payday loans are a simple way to get some quick cash for your immediate needs.
On the other hand, a personal loan is often considered lending a more considerable sum of money for a vacation or buying that new MacBook you are craving. Personal loans can be repaid over a much longer amount of time, upto five years in some instances and often have a lower interest rate associated with it. But lenders also look into details of your credit score, and if you have a below-average credit score, your request for a personal loan is more likely to decline.
Let’s look into the table for some key differences between them.
|Payday loan||Personal Loan|
|Interest rate||Often varies between $15 – $20 for a $100 loan||8% – 25% annually, depending on your credit score|
|Repayment schedule||2 weeks to one month||2 – 5 years|
|Fees||$5 – $20||3% – 5% of total amount|
One very prominent thing is the interest rate. Although the interest rate is significantly higher in payday loans, many can argue it is not a fair comparison. A payday loan is designed for a quick translation in times of great need and cash crunch. $15 for that kind of service is really affordable. If we are splitting hair, I will argue that a payday loan is like treating your friend at McDonald’s for helping you with money to fix your car; you can pay him after getting your next paycheck. Not that bad is it? You can check more on rates here.
A personal loan is more complicated; you have a percent that will keep adding every year. Often, a personal loan is taken for a wedding or for a long holiday you always wanted; the fees are also relatively high. 5% is like $500 for a $10,000 loan.
Some providers do not include any fees, but they often have a very high credit score.
Although they were designed to serve completely different purposes, it is always an advantage for personal loans. The ability to repay it after two years or even five years is an excellent piece of mind.
Payday is designed for a short time, and the typical due time is your next paycheck. Failure to comply may result in additional charges. Some lenders may offer you an extension with a small amount of fees.
Personal loans can be paid over the years. Your economy and surroundings may make it easier to pay off the loans. They are often flexible with their repayment terms, and this gives them a piece of mind. This section is won by personal loan for that reason.
Payday just blows personal loans out of the water. We all know how difficult it is to get a loan approved with a bad credit score; oftentimes, a bad credit score may get your personal loan request to be refused.
But, payday does not depend on credit score; many lenders guaranteed payday loans, often without any credit check. This makes it convenient for anyone with any background or credit score to apply for a payday loan.
Time is also a big factor; payday guarantees a 24-hour loan dispatch, such claims are unheard of in personal loan space. They require lots of paperwork and can often take a week to over a month to approve a loan.
If you keep score, payday is leading, but actually, it depends on which one is best for your needs. For a short, quick cash crunch, a payday is a great option. It has very low requirements to get a loan approved.
A personal loan, on the other hand, is for a more meaningful purpose. It isn’t easy to get approved but has a flexible timeframe to pay off the loan. But you will need a good credit score to get approved.
So, in conclusion, both serve different purposes, and you should select one that is most appropriate for you.
Do you have anything to add or have any questions about the type of loans? Feel free to contact us at PaydayLV, and we would love to hear more from you.