Finding the right loan for your needs can be a tough job, especially given the numerous types of loans available. We are here to help. While we are not a lender, we help consumers like you find the perfect lender (and loan type) to meet your personal needs. Do you need a quick fix or a long-term solution? What is the difference between loan types? Some of the most common loans available are payday loans and personal loans. But which is right for you? The first step is to understand the difference between payday loans vs personal loans. Both have their unique purpose and understanding that will help you find the right loan.
Payday loans are often fast, short term cash loans that aren’t dependent on having good or bad credit. In fact, most payday loans vs personal loans don’t impact your credit at all. They are short term because the loan and interest are often due the following payday. Fast payday loans are smaller amounts of cash than other loan types, usually to solve an emergency or pay bills. One word of caution: short term cash loans can come with high interest rates and disreputable lenders. You can avoid the disadvantages of short term loans by finding the right lender. There are plenty of transparent lending agencies and fast payday loans available. Securing a safe and beneficial short term cash loan is certainly possible.
Every now and then something unexpected pops up in life. Your house needs repairs. Your car breaks down. You need help with covering the cost of your wedding. If you don’t have an emergency fund in place–or it isn’t enough to cover the costs–that is where an understanding of the personal loan comes in. There can be any number of life circumstances that would lead you to consider a personal loan. A personal loan requires approval from a lender. Once approved, you will receive the money all at once, and then pay it back over time.
There are several factors that can impact your ability to get a personal loan. Some of these include the following:
Every lender and loan term is different for a personal loan. Often a low credit score will result in a higher interest rate on the repayment of your loan. According to this article on the basics of personal loans, lenders often require a minimum credit score of 580 to qualify for a loan. Lenders will also look at your income and your ability to pay back the loan. Some personal loans come with fees: application fees, administrative fees, and even fees for repaying the loan too quickly. These are all things to consider as you research the best loan type for you.
There are several differences between payday loans vs personal loans. While payday loans are short term loans, personal loans often have longer repayment terms. Bad credit does not impact a payday loan or the interest rate. Poor credit does influence the interest rate and amount of a personal loan. These are just a few of the differences between the loan types. Understanding the key differences between payday loans vs personal loans will help you determine the loan type that is right for you.
Other differences between payday loans vs personal loans include the lender. Personal loans often come from banks or credit unions. Payday loans come from specialized cash-checking businesses that are unique to each state.
One of the biggest pros of fast payday loans is that it doesn’t impact your credit. Whether you have bad credit, decent credit, or really great credit, you can qualify for short term cash loans. If you don’t have quite enough to cover a bill this month, the payday loan can help. A quick $100 loan paid back with your next paycheck can get you out of a tight spot. There are also disadvantages to the payday loan. Understanding the pros and cons of payday loans is important to the lending process.
Taking out a personal loan has its own set of pros and cons. Unlike the payday loan, personal loan interest rates tend to be lower and repayment schedules are longer. However, taking out a personal loan does impact your credit score. There are many reasons to choose a personal loan for your financial needs. In order to make the best choice, it will help to understand the good and bad of using this loan type.
There are many things to consider when choosing a loan. Knowing the pros and cons of each loan option is the first step. Asking yourself how your needs are impacted by the pros and cons is the second step. For example, Elite Personal Finance recommends asking these basic questions:
Your answers to these four questions can help you determine between payday loans vs personal loans. You now have the knowledge you need to find the best loan for your situation. Does your financial situation limit you from getting a personal loan? Will quick repayment of a payday loan hurt you next month? Knowing if payday loans vs personal loans are the better option is entirely dependent on your unique situation. Having all the necessary information sets you up to make the best decision for your finances.
You may be wondering how choosing payday loans vs personal loans tangibly impact your credit. There are things to consider when getting a loan with bad credit. While personal installment loans are themselves debt, they can also be used to help manage your credit. Personal loans can allow you to get a large sum of money quickly. This can go to pay down high interest debt. Having one low payment can help you make regular payments, pay down debt and improve your credit. However, a low credit score can also mean you don’t qualify for a personal loan. If you do qualify, the loan can come with higher interest rates and shorter repayment terms.
But not all is lost. There are ways to qualify for low interest loans when you have bad credit. Some lenders cater to customers with low or poor credit. While interest rates may still be higher than other lenders, there are options available to you. Make a list of several different lenders to compare what they offer in terms of interest rate, amount, and repayment schedule. You can use a loan calculator to help you determine the full repayment amount. This way you can ensure you have found the best option and are able to make your monthly payments. Using a loan calculator is also a great option as you compare payday loans vs personal loans.
Payday loans vs personal loans aren’t the only types of loans available. There are other loan types if you are struggling with bad credit. How do you find short term loans bad credit users can qualify for? This list of 5 loans for those with bad credit is helpful on your journey toward finding a loan. While we have already covered two loans, payday loans vs personal loans, a few other options exist.
Now that we have compared payday loans vs personal loans, one other loan type comes up in the search for fast short term cash loans: title loans. How do these differ from payday loans? The two loans are similar in that they both have high interest rates and very short repayment terms. They offer fast cash for an immediate cash-flow need.
You qualify for payday loans based on having a consistent paycheck. You qualify for a title loan by using your vehicle title as collateral. Cashry.com reports that “Most title loans come with a high interest rate of 25 percent a month, which is approximately a 300 percent APR. Since they must be repaid in full, these loans can also result in a cycle of debt when acquired on a regular basis.”
For title loans, the value of the vehicle must cover the loan amount. Most states don’t offer title loans higher than $5500, on average. However, the amount offered is dependent on the condition and value of the vehicle you are using as collateral. Like payday loans, title loans should be approached with caution due to high interest rates and short repayment terms.
Understanding the key factors of payday loans vs personal loans will help you on your financial journey. Both loan types have pros and cons to consider. Knowing your financial needs and how to meet them is the first step in choosing the right loan. We are here to help you not only understand loan types but also find the perfect lender. We making shopping for loans–as well as credit and real estate–easier and more efficient. Now that you know the pros and cons of payday loans vs personal loans, which loan is right for you?
About the Author: Chelsea S