What are the Differences Between Payday Loans and Personal Loans?

Sometimes, unexpected things happen, and more likely than not, people don’t plan for emergency situations. In the event that you need a large sum of money for something that happened unexpectedly, you might not be able to financially handle it on your own. This is what makes loans from financial institutions so convenient. They are there for you with the cash you need, exactly when you need it.

There are many different types of loans that you can get from financial institutions, but two of the most common ones are payday loans and personal loans. While there are many similar shared between these two types of loans, there also many subtle differences. Here’s what you need to know about payday loans and personal loans.

Payday Loans

Payday loans are loans that help you with any short-term financial need you may encounter. They are also known as payday advances, cash advance loans, cheque advance loans, deferred deposit loans, and post-dated cheque loans. All that’s needed from the lender is your personal information, and a cheque from you with the amount you would like to borrow made out to the lender. You are then charged a fee, and the lender will deposit the agreed upon amount into your account, or give you a cheque for the amount. The lender will then later cash your cheque or debits your bank account on the agreed upon date of repayment.

These loans can be very convenient as they typically offer modest sums (like a few hundred dollars) right when you need it. With that said, there are also some catches. Most financial institutions will charge high processing fees (some will charge $15 per $100 borrowed), as well as high interest rates (with some as high as 500%). For perspective, annual percentage rates for credit cards only range between 9% and 30%.

If you don’t pay the loan upon the agreed upon date, the borrower will be charged additional fees. And, if your cheque bounces or there isn’t enough money in your bank account to be debited, then your bank will also charge you additional fees. Because the financial institutions that offer payday loans don’t require credit checks, your credit score will not be impacted. This is a bonus for some if they are not able to repay the lender.

Because of the fact that borrowers can easily be caught in a cycle of debt with payday loans, the risks may outweigh the benefits, no matter how convenient payday loans are. Perhaps seek other potential loan possibilities.

Personal Loans

loan application

Similar to payday loans, personal loans are also short-term loans that feature a fixed interest rate and repayment period. The biggest difference is that financial institutions that offer personal loans will make an inquiry into your credit upon your application. Inquiries will lower your credit score, but in addition to that, you may be charged a higher interest rate if your credit score is on the low side. So, if you intend on asking for a personal loan, you should look into your credit score and then research a lender’s minimum credit score requirements to ensure that you qualify. This way, you won’t have to risk lenders making multiple inquiries on your credit score, effectively lowering it.

Both loans have their pros and their cons, but in the event that you still need help with figuring out which loan is fit for you, UrLoan is here to help you get on a positive track to financial health. We offer flexible term loans that’s easy and hassle free that can help you rebuild your credit.

Learn more about how UrLoan can help you with your financial needs, and call us at 1-855-723-5626.