Payday Loans Compared To Bank Loans

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    Payday Loans Compared To Bank Loans
    Payday Loans Compared To Bank Loans

    You may think that payday loans and bank loans are the same, but they are quite different. Both are viable options if you need funding for purchase, but you should consider all of your options before making a decision.

    As such, today, we’re looking at some of the key things you need to know about payday loans and bank loans.

    Payday loans and personal loans differ primarily in three ways: how much you can borrow, how much interest they charge, and how long you have to repay them. Compared to bank loans, payday loans offer smaller loan amounts, higher interest rates, and shorter repayment terms.

    WHAT IS A PAYDAY LOAN?

    It is an unsecured, high-interest loan that is especially helpful during times of need. Borrowers repay the loan amount when they receive their next salary or another source of income after the loan has been approved. Because payday loans are designed specifically for working professionals, they are highly beneficial. You are able to use your loan for anything you want from buying a moped and moped insurance.

    Payday loans can be used by salaried professionals even if they have exhausted their salary at the beginning of a month. Despite their high-interest rates, payday loans are an appealing option. Paying rent, EMIs, and living expenses are common uses of 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 however the borrower chooses. Based on the borrowers’ credit score and ability to repay the loan, the loan is approved. A set monthly installment plan is usually used to repay the loan. A bank’s interest rate on a personal loan varies.

    HOW DO PERSONAL LOANS AND PAYDAY LOANS DIFFER?

    These are the main differences between the two types of loans:

    Time-based rates. Variable-rate personal loans reduce interest over time as you can only be charged interest on the outstanding loan amount, while payday loans increase interest over time. The interest rate for a fixed-rate personal loan remains the same throughout the loan’s term.

    Fees and interest. Interest rates on personal loans range from 6% to 23% p.a. For loans over £2,000, payday loans have an interest rate of 48%, but may charge as much as 20%. The true cost of the loan can be extremely high as a result.

    The cost. A payday lender can charge you for several things, whereas a personal loan is usually fixed and backed by your possessions.

    COMPARISON OF PAYDAY LOANS AND PERSONAL LOANS

    Personal loans and payday loans differ mainly in their terms. The term of a payday loan is usually less than a 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 of payday loans is usually less than £500. Depending on the company, you may be able to borrow as much as £100,000.

    A payday 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 in. It can take a few days for a personal loan to be processed.

    Only personal loans appear on your credit report, a lesser-known difference between payday loans and personal loans. Your credit score will rise if you take out a personal loan and make payments on time. You’ll be able to qualify for better loans and interest rates in the future if you do that.

    As with payday loans, personal loans are often unsecured, so no property or asset is backing them. You cannot be seized by the lender if you default on a payday loan or personal loan.

    Payday 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 request overtime or sign up for a side hustle? Is it possible to borrow money from family or friends? Alternatives such as these are better – and less expensive – than payday loans.