Whats The Difference Between Personal Loans And Payday Loans?

by Kelly

If you are in need of some extra cash, there is a good chance you may be looking to obtain a loan. There are several types of lending options that most people use, all of which have specific purposes.

Personal Vs Payday Loans: What’s the Difference?

The two most common types of lending options are personal and payday loans. A personal loan is typically handed out by a bank or credit union. They are usually paid back over a period of several years and have a fixed interest rate that the borrower has to pay back on top. They are different from payday loans in that the lender is going to do a lot more research into the credit and finances of the borrower.

Banks and credit unions will evaluate your credit history to determine whether or not they want to offer you a loan. They will also consider your current employment and will want to know how much money you are making each month. Your income is used to prove that you actually have the finances to pay your loan each month, so expect to hand this information over if you need a loan.

How Your Credit Will Affect Your Loan

If you are approved, your credit history and income are also going to be used to determine the interest rate you will have to pay. The worse your credit report is, the higher interest rate you are going to have to pay. The reason why banks charge higher interest rates for people with bad credit is due to the fact that the banks are inherently taking a bigger risk. If your credit is poor, there is a bigger chance you will default on your loan, so the banks will take this into consideration.

Payday loans are very different and are typically used to take care of an immediate financial need. They usually require an individual to pay the loan back within a few weeks and come with much higher interest rates. One of the biggest difference for getting this type of loan is that the lender is not going to look at your credit.

Lenders in this category are not really interested in your credit history. They simply want to make sure that you have enough money to pay the loan back the next time you get paid. If you can prove you make a certain amount of money and are paid on a regular basis, there is a good chance you will be able to obtain a loan. Keep in mind, it is generally a good idea to avoid getting a loan in this manner if possible. You will likely end up paying a large interest rate, which can be quite burdensome.

However, this may be a great option for someone who desperately needs to pay a bill and will have the money to pay the loan back soon. If you find yourself faced with having to pay for a bill and can’t come up with the money, it is generally a good idea to exert all other options before accepting a loan that comes with high interest.