What is a Payday Loan?
A payday loan is a short-term loan when you’re in need of liquidity before the end of the month. Payday loan, you can get by depositing the postdated check for the next payday or when you get the income in your account. The borrower needs to provide electronic access to their bank account to the lender. The borrower needs to write a check to the lender name for the amount applied + finance charges and get the loan amount. In case of electronic access, borrower sign over the digital access to their bank accounts to receive and repay payday loans.
Lenders keep with them the checks until the borrower’s next payday then borrower needs to repay the loan amount + finance charges in a lump sum to the lender in cash or borrower can just pay the finance charge to roll the loan over for another pay period. Payday loans are offered at very high interest rates. It’s a short-term loan for a period of 1 week to some years. In only one year the borrower needs to pay the interest of about 400% of the taken loan amount. Payday loans you can get at loan stores as an additional finance product usually banks don’t provide this type of loan only the financial institutions they can provide at their loan stores. A payday loan is referred to in different terms depending on the type of lender such as – cash advance loans, deferred deposit loans, check advance loans, payday loans or post-dated check loans
A payday loan doesn’t go through any documentation process like other loans, it only needs your personal information, the source of income bank cheque or electronic access to your account. It’s a very quick process and you can get this amount without any security, of course, your cheque will act as a security for your applied loan. Payday loans are pervasively applied by people who don’t have credit cards or no proper documents for applying for personal loans.
What is a Personal loan?
A personal loan is an unsecured loan for a short period of time. The personal loan doesn’t require any collateral to submit and it requires to qualify the minimum eligibility criteria limits which are different for different lenders and some documentation verification. Unlike payday loan or credit card debts, the personal loan has low-interest rates. The personal loan doesn’t require any specific purpose to apply and if you take a personal loan for home renovation or construction you may get tax deductions and other benefits associated with the home loan if you submit the minimum documents required for it.
Payday loan Vs Personal loan
- Personal loan credit inquiries affect your credit score.
- A personal loan is an unsecured loan.
- A payday loan is offered at high-interest rates when compared with a personal loan.
- Payday requires minimum documentation.
- A payday loan is offered at loan stores and personal loan is offered by banks and NBFC’s.
- Payday is the last option to go when you don’t have a credit card or personal loan taking ability.
- Payday loan needs to repay in a lump sum and personal loan you can repay according to your flexibility in EMI’s or prepayment option.
- Payday loan lenders don’t bother about your ability to repay the loan while encountering your other financial obligations.
- The payday loan is not permitted in every state /country/area.
- Payday loans are not allowed for active-duty service cohorts and their dependents.