Payday loans or personal loans could be your place of refuge when you get into an emergency need. They are an excellent way since the application and disbursal don’t take long.
But have you ever known the difference between the two? Well, I’m here today to enlighten you on the difference between the two.
Payday loans may seem similar to personal loans, but that’s not the case. It will be good to know the difference between the two loans before you get into a trap.
So, let’s get into it.
The differences:
1. Definition
Payday loans are the kind of loans that you will get and repay in 14 days. However, they have very high interest rates and lenders. As the name suggests, you will repay the loan on your next payday.
On the other end, personal loans are the loans you apply for as an individual and use for any expense you want. For example, you may need to pay bills, buy a car, or even go for a vacation. Personal loan lenders do not restrict you on how you should spend your money.
2. Interest rates
Generally, Payday loans Australia have very low-interest rates starting from an APR of 190%. The lenders say they charge so because they deal with high-risk clients—who have bad credit histories.
On the other hand, personal loans have fair interest rates ranging from 5% to 25%. However, the lowest APRs are for those with excellent credit scores.
3. Repayment terms
After you take a payday loan, the lender expects you to repay during your next paycheck—usually after 24 days. If you skip the repayment date, the lender will automatically double the interest rates, resulting in defaulting.
In contrast, you can repay the loan in small weekly or monthly installments with personal loans until you fully recover the debt. This strategy makes it easier to manage the loan with a reasonable budget. The repayment terms can go up to 24 months or even five years.
4. Credit checks
Payday loan lenders don’t run credit checks. All you need is permanent employment for you to get the loan. Here the amount of loan you get depends on the salary you earn.
However, to get a personal loan, the lender may run hard credit checks o you before they approve your loan. Therefore, the amount you get depends on your affordability and your credit score.
5. Loan amount
With payday loans, you will only get a small loan to do some shopping or repair your car. The lenders do not risk much of their money with the bad credit borrowers.
On the other hand, you can get lots of money with personal loans. If your credit score is good, you may even get enough cash to buy a house, a car, or another major purchase. So, if you are looking for a considerable loan amount, then a personal loan is the right fit for you.
6. Approval time
With payday loans, you will receive the money in your account within some hours up to 24 hours, makings them suit for emergency needs.
However, personal loan lenders can sometimes be slow. You may get your cash ready for use within a few days. But not all keep you for that long.
7. Secured or Unsecured
Payday loans are generally unsecured. The lender will not need you to provide any collateral before you get the loan. Like I said earlier, they depend much on your paycheck.
On the other hand, personal loans can either be secured loans or unsecured. In most cases, they would be secured if the borrower has a bad credit score. But if you have good credit scores, then you can get an unsecured personal loan.
Now,
Since you know the difference between payday and personal loans, you can now make the right decisions when borrowing a loan. But, always remember, uncontrolled debt can get you in a bad financial situation.