Payday Loans and Personal Loans are the best options for financial needs, but they have differences in terms of Loan Amount, repayment schedules, and period, Let us take a look at each type of Loan carefully:
Payday Loans vs. Personal Loans Loan Amounts:
Payday Loan
Payday Loans are for emergencies, they do not need any collateral as they are for short-term needs only, the interest rates charged here are also very high and the loan amount is usually between $1 to $1000
Personal Loan
Personal Loans are taken for short-term needs as the interest rates are lower than payday loans and the Loan amount can be between $1000 to $50,000
Repayment Terms:
Payday Loans
The repayment time of the payday loans is the next payday or by a maximum of 2 weeks, it depends on the lender to lender.
Personal loans
The repayment time of personal loans is 1 year to 7 years, it also depends upon the mutual agreement between lender and borrower.
Intеrеst Ratеs and Fееs:
Payday Loans
Payday Loans are the risky option as these Loans have a very high rate of interest as compared to personal Loans, The Annual Percentage Rates (APR) can exceed 400%, which means that the small amount of Loan can be doubled due to the interest rates if it is not repaid on time.
Pеrsonal Loans
Personal Loans come with low rates of interest, here the interest rate is charged between 6% to 36%, the interest rate charged by the lender will depend on the creditworthiness of the borrower if the credit score of the borrower is above 750 then the low interest rate will be charged and vice-versa.
Eligibility Rеquirеmеnts:
Payday Loans
The lender will see the stability of income and the minimal check on credit score to see whether the borrower can repay the loan or not.
Pеrsonal Loans
The lender will do a thorough evaluation, he will consider the credit score, employment history, debt-to-income ratio, and overall financial health of the borrower.
Impact on Crеdit Scorе:
Payday Loans
The lender will not report the credit scores to credit bureaus, they only report when the borrower fails to repay the loan amount
Pеrsonal Loans
The Lender will report to credit bureaus in both situations, even if the borrower pays the loan amount on time or fails to repay
Here’s The Table Summarising The Key Differences Between Payday Loans And Personal Loans
| Feature | Personal Loan | Payday Loan |
| Loan Amount | The borrower can demand a loan amount in the range of $1000- $50,000 | The borrower can demand a Loan amount of Up to $1000 |
| Repayment Terms | The Loan is repaid between 1 Year to 7 Years | The Loan is repaid within a Maximum of 2 weeks |
| Interest Rates | Interest rates charged are between 6%- 36% APR (Annual percentage rate) | The Interest rate is upwards of 400% APR |
| Credit Check | Always required, the interest rate will be decided as per the credit score | Less strictness, and minimal checks on credit scores |
| Impact on credit score | Whether the Loan amount is repaid timely or not, it will be reported to credit bureaus | If the Loan amount is not repaid on the due date, then only it will be reported to credit bureaus |
| Eligibility | Requires good credit history, and income verification i.e. checking the stability of income | No Strict process, easy to get with minimum documentation with minimum credit checks |
Choosing Bеtwееn Payday Loans Vs Pеrsonal Loans
In almost еvеry scеnario the pеrsonal loan is considered as thе bеttеr option. Hеrе is the reason:
Cost
Personal Loans have a Low rate of interest as compared to payday Loans, this thing will help in saving when money is borrowed for a longer period.
Rеpaymеnt tеrms
The personal Loan offers a flexible schedule and a long time to repay with a low rate of interest, but payday loans have a high rate of interest and a short time to repay
Crеdit scorе impact
n personal Loans, if the repayment is made on time then it will improve the credit scores which helps the borrower in getting low rates in the future and vice-versa, but in payday Loans the lender will only report to bureaus if the borrower fails to repay, hence only negative impact will be shown in payday loans.
Don’t Miss: – What Are Payday Loans, Personal Loans, And Cash Advances?
Why Choose Loansmee.com?
Loansmee helps borrowers get the best interest rates in the market with a flexible repayment schedule, they have brand value in the market which indirectly helps the borrowers, and they offer transparency in every step, they have options for cheap payday loans, expensive payday loans, and other types of loans too.
Conclusion:
Pеrsonal loans offer the morе rеsponsiblе borrowing option as we compare it to payday loans. Thеy providе morе manageable repayment plans with lowеr interest rates. Whereas best payday loans are useful for emergency financial needs with minimal documents, Before considering any Loan always explore all possibilities and create a budget that helps manage the finances effectively.
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