Payday Loans Compared to Conventional Loans

By: Darren Evans

Payday Loans Compared to Traditional Long -Term Loans
Most people have been in unexpected situations in which they were forced to come up with cash they didn't have. Perhaps it was a medical emergency or a house repair that couldn't wait until the next paycheque. They didn't feel comfortable asking a family for help and applying for a bank loan would have taken too long. Quick payday loans that didn't require a credit check seemed to be a pretty good solution.
have become so popular in recent years because of their simplicity and speed. Payday loans are quick advances of cash that are meant to help people who have immediate cash needs. They are short-term in nature and ask that you repay them on your next pay day. With most payday loans, all the borrower really has to do is fill out an application form and provide some personal and employment information. The approval for most payday loans takes a very short time and funds are immediately transferred into the borrower's checking account once the payday loan is approved.
So, how do payday loans differ from traditional long-term loans? For starters, payday loans are only secured against the borrower's next paycheque. In fact, payday loans are classified as subprime loans or unsecured loans.

Traditional long-term loans, on the other hand, are secured loans that are backed by collateral such as property or personal assets. Mortgages and car loans are typical examples of secured loans. These traditional loans have a long payback period and the repayment consists of interest payments at regular intervals and a final payment of the loan amount at the end. The repayment period for payday loans is rarely longer than a month, and usually ends on the borrower's next pay day.
When a person applies for a long-term loan, he or she will have to undergo a very intensive application process. The applicant will have to fill out very detailed and extensive forms and must indicate the reason for the loan. An in-depth credit check also has to be done. The approval process usually takes 28 days or more, depending on the individual lender. As was mentioned above, application forms for payday loans are very short and a credit check is never conducted. In addition, the borrower never has to provide a reason for the loan. If a borrower qualifies for them, many payday loans can be immediately approved.
While traditional long-term loans can only be obtained from large financial institutions or banks, can be obtained from many different sources such as specialist websites, cash counters, toll-free numbers, and even pawn shops. The loan amount that can be obtained from traditional long-term loans is much larger than those obtainable from payday loans. The maximum loan amount for a payday loan usually doesn't exceed ?750.
The annual interest rates for traditional long-term loans are determined by the borrower's credit rating and the prevailing national interest rate. They typically fall in the range of 6% and 15%. The annual interest rates for payday loans will usually be in excess of 200%. Yet, the actual amount of the interest seems a lot less with payday loans because they are so short-lived.
Traditional long-term loans and payday loans can both be appropriate financing solutions, but it depends on what the borrower's current situation is. If small amounts of cash are needed urgently and the borrower can afford to pay back the loan with his or her next paycheque, then payday loans could be the way to go. For larger amounts that are needed over longer periods of time, traditional long-term loans are probably the better solution.

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