If you’re part of either statistic, then you know how easy it is to get into a financial emergency. In that case, you’ll want to know what options are available for funding.
If you want to know the difference between payday loans vs personal loans, then you’re in the right place! Read on to find out more about each so you know what loan is right for your personal situation.
What Is a Payday Loan?
A payday loan is a quick short-term loan you can get. It’s basically a cash advance that’s based on your next paycheck and is considered an unsecured loan, meaning there’s no collateral.
Compared to other loans, you can’t borrow very much (around $500 or less) and interest rates are very high (usually 400% APR!). The repayment period is also very short (around 30 days).
What Is a Personal Loan?
A personal loan usually has longer terms (around 5 years), lower APRs (between 4% to 35%), and higher loan amounts (up to $50,000 in some cases). This type of loan can be either secured or unsecured, although secured loans will have lower interest rates.
A personal loan is tougher to get since it’s usually based on your credit score. The better your score, the more you can borrow. Plus, you’ll enjoy lower interest rates.
However, it’s not impossible to get one if you have bad credit. If you research your options, you might be able to find some with even guaranteed approval.
The one caveat to personal loans is it can take some time to get approval. If you’re strapped for cash, this might not be a viable option.
Which One Should I Get?
Each type of loan has its pros and cons. However, we’d suggest that if you can wait, you should go for a personal loan. Not only is the APR much lower, but you’ll have more time to pay off the loan. Not to mention, you can also borrow more money.
You should only turn to payday loans if you’re confident you can pay the amount back on time, really pressed for cash, and don’t have the credit needed for a personal loan. Otherwise, most people find themselves in an endless cycle of debt with each pay cycle.
Payday Loans vs Personal Loans: Choose What’s Right for You
Now that you know the differences between payday loans vs personal loans, you’ll be able to make smarter financial decisions in the future.
While you’ll mainly want to stay away from payday loans, they can be good for getting cash in a pinch. Just make sure that if you go for this option that you pay it off ASAP so you don’t get trapped in a cycle of debt. In fact, this advice is good for any loan!
If this article on payday vs personal loans was helpful, then check out our other posts for more financial advice! Visit the Loans and Finance sections of the Bootstrap Business Blog for more articles and insights.