At some point in their lives, everyone has a personal emergency that forces them to borrow money. A loan can be a helpful way to meet the needs of a financial emergency almost immediately. Loans can be used to cover medical expenses, home improvements or something less dire, such as a vacation. Whatever the case, it may be in your best interest to get a loan, especially in the short term.
A loan can be borrowed in several ways. The most common forms of loans to get money fast are payday loans and personal loans. Here are the key differences between the two.
Personal vs Payday Loans
Payday loans and personal loans have some essential similarities. Both can be used for emergencies or financial obligations. As well, both must be repaid and paid off with interest in the future.
Here is a quick list of what the differences and similarities of the two loan types are:
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- A payday loan is a short-term unsecured apex loan with high interest. Its principal is part of your next paycheck.
- A personal loan is a long-term unsecured loan with higher minimum loan amounts than payday loans and a lower interest rate.
- In both, you can use the money any way you want.
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However, it is important to delve into their different types, advantages and disadvantages so you can make the decision that best suits your needs.
A payday loan is a type of short-term unsecured apex loan that is made up of principal pertaining to a portion of your next paycheck. This type of loan, while easy and quick to apply for, carries a high risk because they charge high-interest rates and usually have hidden repayment fees. This means that it is very easy for the applicant to get into debt and find it difficult to pay off the debt even if the amount requested is small.
On the other hand, a personal loan is a long-term unsecured loan, and unlike payday loans, they are more complicated to apply for and have much lower interest rates. Personal loans are often used to consolidate debts and access credit more securely.
Here is a more detailed breakdown of each type of loan:
Payday Loans
As we have already mentioned, payday loans are very easy to obtain. It is as easy as applying and, generally, receiving the loan in a few minutes. These are typically for small amounts of money, usually $500 or less, and are based on your income as opposed to your credit history.
“Payday loans come at a price,” says Kendall Clayborne, a certified financial planner with SoFi. “They can carry interest rates of more than 600 percent. Such high-interest rates, not to mention other associated fees, can quickly lead to situations where you end up falling behind on the loan and have to borrow more and more to pay it back.”
Types of Payday Loans
A payday loan can be obtained through a traditional lender or through an online lender. To obtain one, you must usually give the lender permission to withdraw funds from your bank after your check has been deposited.
Payday Faxless Loans
We are in the digital age, and the lending industry has also adapted to it. A faxless payday loan is a cash advance that you can get through an online process. No paperwork is required to apply, you just need to fill out a loan application form and you will get an immediate response.
If approved, the lender will send you a contract. Be sure to carefully review its terms and conditions and pay attention to your payment deadline. If you agree, the signing of the contract is done digitally and this way you will be able to access the money in up to a business day, depending on the lender.
Payday Loans Without Teletrack Verification
Lenders use Teletrack systems to verify the credit history of borrowers. Therefore a payday loan without Teletrack verification is a type of payday loan where the lender can approve the loan without a credit or background check.
This system provides information to lenders, including how well a person has repaid loans in the past and prevents lenders from fraudulent borrowers.
Personal Loans
To obtain a personal loan, you must apply to a lender, either traditional or online. The lender will show you available offers based on your credit history, income and ability to repay the loan. Personal loans can cover home improvement expenses, medical bills and vacations.
Generally, to apply you must first complete an application for the lender to review and then decide whether to approve or decline.
Personal loans have a much lower interest rate than payday loans and are based on your ability to pay. In addition, the interest rate usually remains the same for the life of the loan.
Personal loans generally do not require collateral such as a home or car to receive them.
Lenders, whether they are online, banks, or credit unions, will give you the money that you will have to pay back over a fixed period of time.
Personal Loans for Carers
A personal loan for caregivers is a type of loan that is available to people who provide day-to-day care to someone who has a serious physical or mental condition or who is caring for an elderly person.
These types of loans are designed to address a medical emergency such as an unexpected fracture, an expensive doctor’s visit, or to purchase medical equipment that a caregiver requires to do their job.
Conclusion
As you can see, the differences between payday loans and personal loans are quite drastic. Your choice should always be based on your situation and your needs.
If you need an urgent loan that is easy and quick to get, a payday loan may be your best option. However, there is an immense amount of risk that comes with getting a payday loan.
On the other hand, if you need home repairs or a vacation, you may be inclined towards a personal loan.
Remember that a personal loan will always be cheaper than a payday loan and give you more time to repay it. Payday loans carry higher risk and are more expensive, so you should consider whether your situation is urgent enough to take that risk.
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