Payday Loans Vs. Personal Loans

by : Andrew Daigle

Payday loans and personal loans have very little in common with the exception of one thing. Like personal loans, payday loans must be repaid according to the terms of the agreement between both you and the lender. If you're in need of a loan, it's very important to examine the differences and determine which would work best for your individual circumstances.

A personal loan is very much like any other traditional loan. When you apply, you will be required to submit information relating to your income and the lender will review your credit report to determine your eligibility. If you are approved for a personal loan, which are generally issued as unsecured loans, you will be assigned an interest rate and monthly payment in accordance with the agreement to repay. In most cases, a personal loan is designed to be repaid within several years and in order to be approved for a personal loan, the lender will determine how much you can afford based on your current income and debts.

A payday loan, as the name implies, is designed as an advance on your next paycheck. In order to qualify, you must be 18 years of age or older and the only things that you need are a bank account and a job with steady income. Self-employed people are not generally eligible for receiving payday loans. Because most payday lenders do not access a credit report, your credit history or lack thereof will not be a determining factor in your eligibility to receive a payday loan. Instead of charging an interest rate on the loan, payday lenders charge a set fee per every $100.00 borrowed, which typically ranges from $10.00 to $30.00. On a $1,000.00 loan, for example, you could end up paying an additional $100.00 to $300.00 in fees. This means that payday loans are more expensive than traditional loans, but they offer fast cash for those who need it. Payday loans are issued within 24 hours of the application in most cases.

If you are trying to decide between payday loans and personal loans, one of the greatest factors to consider is how much money you need to borrow. Payday loans typically do not exceed $1,500.00, whereas personal loans can be much higher. If you need quick cash, payday loans can offer it, but the rates are much higher than with unsecured personal loans. If you have a limited or poor credit history, you may find it difficult to find approval for a personal loan. In some cases, lenders will issue bad credit personal loans, but the interest rates will be somewhat higher. If a traditional loan is not an option for you, a payday loan may be the answer. Typically people apply for payday loans for emergency reasons.

The information contained in this article is designed to be used for reference purposes only. It should not be used as, in place of or in conjunction with professional financial advice relating to the payday loans or personal loans. In addition, this article is not to be used as a recommendation for any type of loan or other similar process. Check with a lender who specializes in these types of loans for additional information on payday loans or personal loans.