Personal Loan vs Payday Loan: Which One Is Best for You?February 04, 2021
Financial emergencies can cause you to find yourself looking for your nonexistent money in your bank account or scrape coins out from your piggy bank. If you need quick access to cash, you might be considering applying for a personal loan or payday loan.
Both loans may seem like they offer the same benefits, but they are actually different. Before deciding, it’s best to understand the difference between a personal loan and a payday loan so you can determine which one is your best option.
What Is a Personal Loan?
A personal loan is also known as an unsecured loan because you don’t have to use your house, car, or any valuable asset as security. It is an excellent way to get your much-needed cash for any purpose. Whether you have to pay for a medical emergency, home improvement project, or college tuition fees, you can access the money you need right away with this type of loan.
A personal loan is ideal for you if you have a good credit score because it comes with longer repayment terms and lower interest rates, making it more affordable than payday loans. Before selecting this loan, you have to determine how much money you need and over what period. Doing this is important because it will affect the interest rates charged and the terms in which the lender lends you the money.
The interest rates or tiered interest rates are charged depending on how much you want to borrow, but personal loans generally have higher interest rates than secured loans. This is because they are riskier for the lender. To save money, consider getting up to a higher tier.
What Is a Payday Loan?
The best thing about securing a quick online payday loan is it can be taken out over a very short period of time. Therefore, it can be the right option for you if you need cash right away.
You don’t have to worry about having a good credit score because it is not required to qualify for this type of loan. Collateral and co-signers are also not needed. Best of all, you can have the money you need in your account as soon as the next day if you took out this loan.
If you decide to apply for a payday loan online, remember that it comes with a very high-interest rate. It may be tempting to secure this loan right away, but be careful not to make the common mistake of eventually finding out that you can’t afford the repayments.
On the other hand, you might think that the extensions offered by some lenders would help you. However, a longer repayment period means that you incur more interest and likely get into a cycle of crippling debt. Therefore, you should be vigilant and think twice before applying for a payday loan.
Payday loans and personal loans can help you get the cash you need fast and without hassle. While both loans help you access fast money, make sure to be wise in choosing because you can drown in debt if you’re not careful. Remember the information stated in this guide so you can make a better-informed decision and assess which option is right for your financial situation.
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