Payday Loan vs. Personal Loan
If you're shopping around for a personal loan, you've probably come across the term "Payday Loan" and wondered, "What's the difference?" While a Payday Loan is technically a type of small personal loan, there are some important distinctions to make between the two.
In this article, we’ll dive into Payday Loans vs. personal loans so you can decide which type of loan is right for you.
What is a Payday Loan?
Payday Loans are small-dollar, short-term loans that are paid back on your next payday. Borrowing amounts are determined by how much you earn, plus any state regulations regarding Payday Loans. Since these loans are unsecured, there’s no risk of losing valuable collateral, such as your vehicle, if you cannot repay the loan in full.
Payday Loans are useful for covering emergency expenses like medical or vet bills, car repairs, home and appliance repairs, or higher-than-expected bills. A Payday Loan can be preferable to using high-interest credit cards to cover expenses, late fees for missed payments, or reconnection fees if services are disconnected.
Getting approved for a Payday Loan can be easier than a traditional loan because lenders often don’t require you to have good credit. Instead, they base their approval decision on your employment history and income rather than your credit score.
What is a personal loan?
The term “personal loan” refers to any type of loan where an individual borrows a lump sum of money and repays the amount, plus interest, according to the lender’s repayment schedule. Payments made over time are often called “installments,” which is why most types of personal loans are considered Installment Loans. The credit requirements, interest rates, and payment amounts vary widely depending on the lender and the specific type of loan, so be sure to do your research!
Personal loan amounts can range from a few hundred dollars up to tens of thousands of dollars. Larger amounts are typically only available through traditional lenders like banks or credit unions, and they have stricter credit requirements. A personal loan can be a good financing option when you need to make a large purchase, such as a vacation, wedding, education or professional training, home improvements, or starting a small business.
Most personal loans are repaid over a period of a few weeks, months, or years. The larger the loan, the longer it takes to pay it back. Personal loans can also be either secured or unsecured. Secured loans requiring collateral tend to offer lower interest rates and payment amounts than unsecured loans.
Payday Loans vs. personal loans
So, which is better? Payday or personal loans?
The answer is, “it depends.” Although Payday Loans are considered a type of personal loan, they’re very different from traditional personal loans because they’re designed to meet more immediate financial needs.
The key is to understand which loan may be a good fit for your specific needs. For example, you might consider a Payday Loan if you:
- Need a small loan.
- Need money quickly.
- Don’t have good credit.
- Know you’ll be able to repay the loan on your next payday.
Be aware that most Payday Loans won’t help you improve your credit score because payday lenders don’t typically report payment information to the credit bureaus. If you’re trying to rebuild or establish your credit, you may want to look into traditional financing options through your bank or credit union.
With that being said, you may want to consider a personal loan if you:
- Need to borrow a larger amount of money.
- Want to make a large purchase.
- Want to repay your loan over time.
- Know you’ll be able to repay the loan according to the pay schedule.
If you have a low credit score and your lender reports your payment information to the credit bureaus, making your personal loan payments on time and paying the loan back in full can raise your credit score.
Do I need good credit for a Payday Loan?
Not necessarily. Many lenders have lenient requirements that allow borrowers with bad credit to be approved for Payday Loans. They’ll look at factors besides your credit score, such as your employment history, current debts, and income.
What about a personal loan?
Whether you need good credit for a personal loan depends on the lender and their application requirements. Some lenders will only work with borrowers with good credit scores, while others may require at least fair credit.
Even so, you might be able to get a loan if you have bad credit. Simply look online for lenders offering personal loans for borrowers with “bad,” “poor,” or “damaged” credit. These lenders are more likely to weigh other factors when making an approval decision.
What can I do if my loan payments become too high?
You never want to borrow more money than you can afford to repay. Before applying for any type of financing, you’ll want to review your budget, monthly income, and expenses to ensure you can afford the payments.
But we understand that financial situations can change. If you’ve lost income, you might be worried because your loan payments are stretching you too thin now. If that’s the case, contact us to see if refinancing your personal loan is an option.
Explore Payday Loans and personal loans at Advance America
For more than 25 years, Advance America has been proud to work with borrowers of all credit types to help them with solutions when they need money. We offer Payday Loans, Installment Loans, and personal Lines of Credit to ensure you get the money you need. Best of all, you don’t need good credit to be approved! Applying is quick and easy, and you may even receive your money the same day.
Are you ready to get started? Apply now to get your instant approval decision!