Personal loans can help people get by on a day to day basis, according to a recent report by CNBC. Consumers borrow to meet a financial purpose as basic as daily living expenses to something major like consolidating credit card debts per the
Does that mean personal loans are payday loans, which are infamously popular for being able to deliver fast cash “due the next payday”? How are both loans different or similar to each other?
Let’s find out below. Let’s help you get in touch with a lender.
Defining Personal Loans and Payday Loans
If for their purpose, payday loans can be personal loans. These payday loans appeal to customers in need of fast cash, settling the loan the next payday or on an agreed date.
In most cases, the borrower will write a check and leave it to the payday lender who will cash it in once the repayment funds are in.
Payday loans don’t usually require credit checks. This makes them easier to obtain but at higher interest rates plus finance charges for processing those loans.
Speaking of interest rates, you need to undergo a credit check and overall evaluation of your financial capacity to get a personal loan. Still, you can get one with little documentation.
The lender will use your credit score to determine your personal loan rate whose APR can go as low as 10.3% for those in the top fold credit score level of 720 to 850, according to CNBC, citing data from ValuePenguin. So if you have
bad credit, your rate could take a hit.
Given this “background check”, personal loans offer larger amounts at fixed rates and repayment terms as long as five years.
This allows personal loans to cover a wider range of financial goals. It’s not unheard of to use a personal loan to fund a car’ down payment or a home improvement project.
Lenders are accessible here.
Drawing the Line
To summarize the important points of the two types of consumer loans:
||Two to five years
||Weeks or months (term doesn’t reach a year)
||Depends on credit score but higher than mortgage rates
||A hundred or more percent (e.g.
||Thousands of dollars
||Usually for smaller expenses
So, Which Is Which?
To be fair, both loans are generally unsecured. They don’t need a personal asset, e.g. a home to secure their repayment. To make up for this lack of collateral, lenders set higher rates on personal loans and payday loans than on home loans or car loans.
if you are cash-strapped and seeking funds the fastest way, payday loans might solve your problem. Then again, be very careful with the loan costs, especially the APR and finance charges.
Don’t fall into the trap of
predatory lending and report it right away.
Consider personal loans for short-term to long-term personal finance goals. You can build your credit prior to getting a loan to secure a better rate. If you were to use the loan proceeds to pay off credit card debt, take care not to
spend above your credit limit next time.
As the CFPB always says, know before you owe. Always shop and compare the best loan rates.
Get Your Free Mortgage Loan Quote Today