Personal loans vs. payday loans: Their differences
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Imagine that you are short on money to cover electricity bills, home renovations, or a vacation. Getting a loan can be a helpful way to pay for expenses you cannot afford at the moment. Two of the most common loans to receive immediate cash are personal and payday loans. They may seem like they offer the same thing, except each has its benefits and features. Both are workable options if you need cash. But it’s best to do some thorough research to know your best option. This post undertakes a comprehensive analysis of the differences between personal loans and payday loans.
How payday loans work
A payday loan is a short-term loan. Lenders will provide you with money to get by until your next paycheck. Payday loans are a great short-term solution. It is beneficial for individuals who need small amounts of money. Additionally, applying for a payday loan is easy compared to other loans. Usually, lenders will ask questions about your income sources. Some lenders need access to your bank account. The approval time is generally quick. You can receive your loan as fast as 24 hours.
The approval process and requirements will depend on your lender. For instance, Lenders like GoDay allow you to apply for a payday loan online. With GoDay, all you need is an open bank account with a Canadian bank. You don’t need to be employed. GoDay accepts a variety of income sources like Old Age Security, Disability tax, and more. If you cannot pay back your loan on time, you will face interest charges and more debt.
Make sure to find a reputable lender that caters to your needs.
How personal loans work
A personal loan lets you borrow a particular amount of money. It is usually offered by a bank, a personal loan lender, or a credit union. The approval time for a personal loan will depend on your financial circumstances. Your chosen lender will review your credit score and debt-to-income ratio. You have the option to repay your loan for a more extended period, usually between 2–5 years.
You can choose from two types of personal loans: secured or unsecured personal loans. A secured personal loan requires you to present collateral upon borrowing money. For example, you can get approved for a personal loan if you show cash assets like a savings account. You can also present a physical asset, like a car. If you cannot pay back the loan, the lender can keep your collateral to fulfill the debt. An unsecured personal loan is not supported by any collateral.
If you don’t pay back your loan on time, it will affect your credit score. But you can make extra or early payments before the end of your loan term.
The bottom line
The concept of payday and personal loans may look similar at first. But they are different. It is always best to know the differences between the two loans before you decide on getting a loan.