Top 5 Differences Between Payday And Personal Loans

If you are currently looking for the financing opportunities, you must have considered two main options being a payday loan and a traditional personal loan. The only seeming difference is that the former one is somehow related to the payday while the latter has a personal belonging. In reality, there is a huge difference between these two and that is what we are going to discuss below.

To begin with, let us talk about personal credits for a bit to find that common understanding of the term. These loans are usually issued by the traditional banking institutions and entitle a borrower to use money for a particular purpose with a number of other restrictions. There are different types of these credits which are usually given for a specific purpose of a client be it a purchase of a house, the mortgage loan, or of a car, the car credit.

Finding The Loan For One’s Purpose

As we have already mentioned, the first thing attracting attention in the payday loan is that it is somehow related to the date of payment. To be more precise, these credits are usually provided for a quite short period of time so that a borrower repays it with his or her next salary or profit. This feature makes the principle difference between the two and drives all the other features which vary in these two credits.

Here are the top 5 differences between the two types of credits we have determined to enable you to make the right choice when it is needed:

  • purpose: first and foremost, you need payday loan to solve the current financial trouble and the personal loan to make a long-term investment in the quality of your life;
  • interest rate: these loans have different interest rates to be paid. For traditional ones, the rate is somewhere between 3-10{110af710dcb879fee178dd0c43bd4504925a948f9b856269c9757d57ac49ba92} depending on a number of factors. While for the short-term ones is is as high as 15{110af710dcb879fee178dd0c43bd4504925a948f9b856269c9757d57ac49ba92}. This is owing to the fact that these loans are issued for reasonably short periods of time and therefore the compound interest plays no role here;
  • period of time: personal ones are generally considered to be long-term credits, while payday are extremely limited in time. Depending on the legislation, they have to be repaid within 30 days on average;
  • loan amount: obviously taking out money to cover the mortgage means taking out lots of money. The payday one works just the opposite way. Usually, you are not allowed to take out more than $500;
  • accessibility: to be eligible for a payday advance you do not need to provide any securances other than a proven stable income. The mortgage loans always require you to secure the money you take out with a property you already own.

To wrap it up, there is a number of differences between bank and payday loans. While making decisions, you always have to keep in mind the purpose of taking out money.

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