All debts are not created equally. Even if you borrowed $400 in the last week of the month, you will have a very different experience repaying the same amount. Factors like loan terms and interest rates will depend on the kind of debt you choose.
Let’s learn how two popular credit types’ personal loans and online payday loans differ. The latter is chosen when a borrower needs emergency funds and repays it with next month’s paycheck. The former is generally taken for home improvements, consolidation, car repairs, vacations, large purchases, and weddings.
Payday vs. personal loans
- The basic terms of a personal and payday loan are the main difference. A personal loan is for a minimum of two years, while a payday loan is for a very short period.
- The interest rate for a personal loan is lower in comparison.
- Payday loans have a limited maximum amount [usually >$500], while you can borrow $100,000 as personal loans.
- Payday loans can be easily accessed, while personal loans take several days for processing.
- Personal loans show on credit cards, so if you default on installments credit score can get a dent. Alternatively, if you make timely payments, credit score can enhance and you get eligible for better interest rates and large loan amounts in the future.
- Some personal loan lenders have conditions on how the loan funds get used, while payday loans are lax.
Both kinds of loans are unsecured it means no need for collateral. It also indicates that on payment default, the lender has nothing to seize. Personal loan is a less costly option but if you don’t qualify try to look for other alternatives like borrow from friends, ask boss, do some overtime, etc. These are great alternatives rather than applying for a payday loan.
Due to payday loans short due date, the borrowers can struggle in repaying and will require a new loan with new interest rates. Therefore, think before you leap!