Before making the decision on choosing a loaning option, it is vital to understand both of the options to better manage your finances. Even though payday loans and personal loans might seem to be similar on the outside, however, they are both entirely different due to their functions. Choosing the right option depends on many things such as your credit and the amount of money that you need to borrow.
Key Differences between Payday Loan & Personal Loan
Payday loans as well as personal loans might be both useful to help boost your finances but that’s the only similarity between the two. The main differences between the two are the loan amount, loan cost and term among others.
- Loan amount: A payday loan would normally offer you from $100 to $1500, with some even offering loan up to $6000. Whereas, a personal loan would allow you to borrow up to $100,000 and one can easily get a personal loan of around $50,000 if they have an excellent credit score.
- Loan cost: A payday loan is much more expensive due to the fact that it does not have any strict credit requirements. Whereas, a personal loan is much more cheaper as the interest rates are lower as compared to a payday loan. However, payday loans do not require an excellent credit score, while, personal loans do.
- Loan term: Payday loans are meant for a short period of time such as a week or two, whereas, personal loans are typically for a longer period of time with minimum personal loans being offered for a term of 12 months and will go for a longer term of up to 10 years.
- Requirements: Payday loans are much more flexible in terms of requirements and the lender would typically only require you to show a regular source of income to be eligible. Whereas, personal loans are offered by credit union and banks and have strict requirements in place. Some of the requirements include having a good credit score and a strong financial background.
- Lenders: Payday loans are normally offered by lenders which specialize in check-cashing services or short-term lending. Whereas, personal loans are typically offered by credit unions, banks, peer-to-peer lenders and online lenders.
How much would an Option Cost?
Both options cost differently if compared as a whole. Typically a payday loan is much more expensive as compared to a personal loan due to the lenient terms and conditions required for obtaining a payday loan and due to this reason; the interest rates are very high. A personal loan is cheaper for long-term financing.
Which Option should One Choose?
Choosing the correct option for your financial needs is vital but in order to choose the right option, one needs to fully understand the differences and their own need. If one needs a loan for just a few days as it is urgent or to avoid fines then a payday loan is the right option as immediate financing would be provided. But, if a longer term is needed then a personal loan would be required. The right option depends on one’s needs and the situation at hand. Choose a company that will help you find the best loan as per your needs with one Loan Company in the UK.