Credit based on Payday vs. Personal Loans

While on the surface payday and personal loans may seem similar, they really have almost no resemblance. Like all loans that must be repaid, both payday loans and personal loans have a schedule according to which they should be paid. If you're in need of a payday loan, it's very important to examine the differences and determine which would work best for your situation.


Personal loans are not any different from other loans that we usually take. The application for the personal loan requires you to submit your income statements and typically a loan officer assesses your eligibility for the loan. If you're approved for a personal loan, you will be assigned an interest rate and monthly payment in accordance with the repay agreement. A personal loan, no matter how it is structured, will require you to pay a fixed sum as per a schedule, usually over a few years, and the amount of the loan and the repayment period are normally calculated from the total income and your current financial obligations.


A payday loan, as the name implies, is designed as an advance on your next paycheck. The qualification criteria for payday loans is very simple, normally restricted to age, 18 and above for most cases, a bank account and a regular job which pays. Self-employed people obviously do not draw a salary and thus are not qualified for payday loans. The huge advantage of a payday loan is that the lenders do not access your credit history or credit report and thus your credit ratings do not play any part in the eligibility criteria. Payday loans work on the principle of service charges for every $100 borrowed, usually between $10 and $30, rather than interest rates, as is prevalent in the personal loans. On a $1,000.00 loan, you could end up paying an additional $100.00 to $300.00 in fees. We can safely conclude that payday loans are expensive in comparison to traditional loans but they do provide the fast cash one may need. Payday loans are disbursed very swiftly, within 24 hours in most cases.


The loan amount you are seeking is of paramount importance when deciding between payday loans and personal loans, and you must be very careful about this decision. Payday loans typically do not exceed $1,500.00, whereas personal loans can be much higher. If you do not need almost instant cash, it is advisable to go for personal loans as these have much lower rates in comparison to payday loans. Personal loans require a credit history check and thus can be out of reach for some people while payday option would provide instant cash. People with bad credit history can find some relief from lenders issuing  bad credit personal loans albeit at higher interest rates. If the personal loan is not an option, a payday loan may be the only way out of the situation. Thus payday loans are really emergency loans of sorts, and should be treated as such.


The information contained in this article is designed to be used for reference purposes only. It should not be used in place of or in conjunction with professional financial advice relating to the personal loans or payday loans. This article is not to be used as a basis for any type of loan or other similar process. You are requested to seek further specific information from the lender of payday and personal loans, or from credit companies dealing in the same area.