When you hear about payday loans and personal loans, it’s quite common to think that they are the same thing. But that’s not really the case. They are different financial products, and you will encounter quite a lot of differences. With that in mind, it’s important to understand what makes payday loans different from personal loans, so you can pick the right one based on your needs and requirements.
What are payday loans? What are personal loans?
A personal loan is basically an installment loan that comes with a fixed repayment term. It’s usually a longer-term loan and one that you take when you want to acquire a car or to cover some major expenses like surgery expenses for example, among many others. On the other hand, payday loans are short-term loans that have a very high-interest rate. While you will know the interest rate in both cases, the truth is that payday loans end up having a much higher interest rate when compared to a payday loan.
Are there any limits for personal or payday loans?
Yes, in the case of payday loans the limits are around R5,000 or R10,000 at most, depending on the lender. The duration is also anywhere from 2 weeks to a month at most.
In the case of a personal loan, the loan length is 2-5 years, and the loan amount is R10,000 to R250,000. That being said, the APR for personal loans is up to 36%, for payday loans it can be 400%.
Are there any penalties if you don’t pay up on time?
Yes, both loans have penalties if you don’t pay in time. But since personal loans have a lower interest rate, you will pay significantly less if you don’t cover everything in time. In the case of payday loans, you will have a pretty high-interest rate and penalties can also be significant. That’s why if you want payday loans, you need to repay them as quickly as you can, otherwise, you will encounter problems and that’s the thing to keep in mind.
Is a credit check needed?
Most payday loan providers will not require any kind of credit check. That being said, for personal loans you will undergo a credit check. These are long-term loans, and you must have a credit check done. The lender wants to see your credit history and be certain that you can repay the loan back. Otherwise, there can be various challenges that appear, and it’s something to keep in mind. A personal loan usually involves a lot more money, hence the reason why you need to undergo more rigorous checkups.
Secured/unsecured
You will notice that whenever you ask for payday loans, they are unsecured, and they won’t need any type of collateral. That’s not the case when it comes to personal loans. Some of them are unsecured, but most of them require collateral. Of course, nothing is 100% set in stone here. The lender will ask for collateral if the borrower has a bad credit score. If your credit score is ok, generally you will get an unsecured loan.
Application process
In the case of a payday loan, the process is simple, you have to apply for the loan and share paycheck stubs to show that you can actually afford the loan, to begin with. Visit Express Finance to start your application – https://www.expressfinance.co.za/
A personal loan has a more complex application process however. You must check the credit score and then calculate the amount of money you want to borrow. After that, you need to prequalify with lenders, compare their APRs and then choose the right offer.
You can apply through the lender, they will do a hard credit inquiry. You can expect such checkups when you apply for a loan, but if it all works out, you will receive the loan quickly and without any issues.
Is there any flexibility?
Both loan types are pretty fixed, they don’t really offer a lot of flexibility, which is something to take into consideration here. Unlike payday loans that have a fixed duration of 2 weeks in general, personal loans allow you to choose the amount of time needed to repay your loan. Sometimes this might be imposed by your lender, but usually, you can choose how much time you need, which does convey some flexibility.
Borrowing costs
Due to the high-interest rates, payday loans are recommended only if you have no other option to acquire money right away. They should be used only when you are in dire need of funds and you are unable to acquire them to cover all your costs. Generally, these have high-interest rates, and because of that, you can end up paying a whole lot just due to the interest rate.
For personal loans, things are a lot simpler. The interest rates are smaller, and you have a much longer repay time. Sure, you can borrow more than R5,000 or R10,000, but you do receive some lee-way and that alone can be incredibly helpful.
Which is the better option?
Depending on the situation, you can end up going with one or the other. Generally, we believe that payday loans are better if you are in dire need of money and you just want a small amount to cover debt or any unforeseen costs that appeared out of nowhere. If you want a larger amount of money, you will notice that personal loans are better, more flexible and they won’t come with a massive interest rate either.
It’s important to keep in mind how fast you need the money and also whether you have enough to pay the sum and its interest rate. That’s why you should resort to payday loans only when you really need money quickly. If you need a larger amount and want to avoid any rush or high-interest rates, personal loans tend to be the ideal option. Check with the lender, see the interest rate and the overall duration, then you will know what you can afford and what suits your requirements!
