Learn the difference between payday loans vs personal loans so you can better understand the loan options available to you.
There is a lot to consider when reviewing your borrowing options for loans, like the difference between payday loans vs personal loans and their different benefits and features.
Both types of loans offer quick access to the funds you need when you need money most, but both loans come with different amounts, terms, and conditions. Let’s go over what the differences between these two types of loans are so you can feel better about making your borrowing choices.
Applying for a Personal Loan vs a Payday Loan
A personal loan is a type of loan that can be used for various personal expenses and is usually based on creditworthiness and income.
If you’re applying for this type of loan, it might be because you need money for any number of personal reasons with a manageable payment schedule.
A payday loan is a type of loan that can be used to help borrowers get financial help between paychecks.
If you’re applying for this type of loan, it might be because you need money from your next paycheck now instead of later for emergency or unexpected expenses.
How Personal Loans vs Payday Loans Work
A personal loan works by a borrower filling out an application, the application is reviewed, and if approved, the applicant receives their money. Then, the borrower usually repays the loan in several payments over the course of a few weeks or months, depending on the loan term.
- Fill out a loan application.
- If approved, receive your loan money.
- Repay your loan in a few payments.
A payday loan works by a borrower filling out an application, the application is reviewed, and if approved, the applicant receives their money. Then, the borrower usually repays the loan in one lump sum on the date of their next payday.
- Fill out a loan application.
- If approved, receive your loan money.
- Repay your loan in full on your next payday.
Benefits of a Personal Loan
There are many benefits of personal loans to consider when weighing your borrowing options. You want to consider things like your financial situation and what kind of debt you comfortably have the ability to repay. You also want to think about the repayment term, annual percentage rates (APR), and any other terms and conditions so you can make the best choice for you.
One of the benefits of a personal loan is that it offers flexible funds. This money can be used for various personal reasons. It’s a great option when other loans that come with a specific purpose don’t apply to your financial situation.
Another benefit is that they require no collateral. This makes them a little more accessible to more borrowers since you don’t have to put up a physical asset like your car title to qualify.
All in all, this loan type is a fast and flexible option when you need money. They’re available to a wide range of borrowers, the application process and underwriting is usually very quick, and the repayment terms and payments are usually fixed and clearly set out. There is also a repayment plan you’ll need to plan for.
Benefits of a Payday Loan
There are many benefits of payday loans to consider when weighing your borrowing options. You want to think about things like the financial institution, whether you can pay back the loan, the interest rates, and even the number of business days it takes for applications to process.
One of the benefits of a payday loan is that it offers fast funds when you need money now. The application and approval process is usually very simple and quick, so you can get money for unexpected or emergency expenses as quickly as possible. Some lenders even offer loan approval and deposits on the same business day.
Also, these short-term loans don’t require collateral, so you don’t have to put up loan requirements like a title to get approved. Overall, this is a convenient, fast, and simple option when you need money in a pinch.
This type of loan has a very short repayment term where you generally pay back the loan in one payment on your next payday. This can be a convenient way to get money and repay it back quickly, but should be considered carefully when making a financial decision.
Payday Loans vs Personal Loans
There are a few key similarities between payday loans vs personal loans. For example, they are both a type of loan that allows borrowers to get the money they need, they are both small loans with shorter loan terms, and they both don’t require any extra collateral.
There are also a few key differences between payday loans vs personal loans. For example, they are different in that personal loans offer larger loan amounts with longer loan terms compared to payday loans. Likewise, payday loans offer smaller loan amounts with shorter loan terms compared to personal loans.
Another main difference between personal loans vs payday loans is that payday loans are usually paid back in one lump sum in a one-time payment, usually on the borrower’s next payday, while personal loans often have more than one payment over a few weeks or months.
The bottom line is that payday loans are paid back in one lump sum, usually in a 1 to 2 week term, with fast funding, no collateral required, shorter loan terms, and higher interest rates. This makes this loan a great option when you need to a small loan amount to help tide you over until your next payday.
Likewise, the bottom line of personal loans is that they are paid back in a few payments, usually in a 5 to 6 month term, with flexible funding, no collateral required, longer loan terms, and higher interest rates. This makes this loan option better if you need to borrow a larger amount and want to make payments over a longer period of time to possibly keep your payment amounts a bit smaller.
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