Payday loans or personal loans could fill that void. But before applying for either, you should know how they differ, so you pick the correct type of financing for your needs.
You’d never have to take out a loan in an ideal world, as your savings and income would suffice. And even if you came up short, you could turn to friends and family for help. Unfortunately, that’s not the reality for most, which is why things like payday loans and personal loans exist.
Both payday and personal loans can give you fast cash to cover expenses, but that’s where their similarities end. To see which better fits your needs, have a look at the following comparisons.
How Payday Loans And Personal Loans Differ
Although they may sound the same, payday and personal loans are entirely different animals. Here’s how they stack up in several departments.
How Much Money Can You Get?
Do you need a little bit of cash to pay a bill or two, or do you want to take on more expensive projects like paying for a wedding or vacation or remodeling your home?
A payday loan could suffice if you just need a small amount of cash since they usually max out at $500. But if you need more cash, opt for a personal loan, as they usually start at $1,000 and can go all the way up to $100,000.
What’s The Interest Rate?
If you had to pick one area where payday and personal loans differ most, it could be the costs.
Payday loan interest rates can be ridiculously high, giving them a reputation that many call predatory. Just how high can payday loan interest rates get? As high as 664 percent in Texas, the state with the most expensive payday loans on average.
Are personal loans “cheap?” That depends on your credit, as they can have as low as 5 percent APR and go up to 35 percent. That’s still a lot cheaper than payday loans, though.
How Long Do You Have To Repay The Loan?
You can expect to repay a payday loan within two weeks using your next paycheck. The lender may withdraw the funds directly from your account.
Since personal loan amounts are higher, you have longer repayment terms that can go up to seven years. Repayment can be made via autopay, and you can look forward to the same monthly payments thanks to fixed interest rates.
Can These Loans Build Your Credit?
A payday loan probably won’t affect your credit in a positive way since such lenders do not report timely payments. They do report late payments, though, which can hurt your credit.
Personal loans can build credit since many lenders report on-time payments to credit bureaus. Miss a payment, though, and you can hurt your score.
What’s The Application Process Like?
Applying for a payday loan is pretty painless since it usually does not require a credit check, and you can get a decision in minutes.
Personal loan applications are usually easy as well. You can apply for one through a bank, credit union, or an online lender and see if you prequalify without having your credit pulled while shopping around for the cheapest rate and best terms. Once you officially apply for a personal loan, that is when they will check your credit and ask for pay stubs and other info. Lending decisions here can be pretty quick, with some offering same-day funding.
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