$500 Payday Loan vs a $500 Personal LoanBy Caitlin in Loans
Everyone has been in this situation at least once in their lives; the need for a moderate amount of cash quickly and efficiently pops up out of nowhere. Life happens, emergencies happen and they almost always sneak up on you with absolutely no warning signs. But, it’s the decisions you make after that can make or break your financial situation. Most people’s first reaction would be to get a payday loan when they need quick and easy cash, but in reality they should be getting a small personal loan and here’s why.
The idea of a payday loan can be very appealing especially if your current financial situation isn’t so great. But what payday loan providers don’t advertise is that once you take out one loan you’ll be sucked into a cycle that will completely ruin your personal finances. Payday loans do not exist to help out people who need financial help they exist to make money for the providers. Here’s what you need to know about payday loans.
The interest rates
Payday loan interest rates are some of the highest for any type of loan; some carry a 500% yearly interest rate which will inevitably force you to pay more for interest than the original loan amount. Here’s the scenario, you take out a $500 payday loan which needs to be paid back in two weeks. Once the two weeks is up you’ll owe your provider at least $600 if not more. This is about a 20% interest rate for two weeks (but amortized over a year, the amount is MUCH greater!) but the problem is that in Canada this is the low end of the spectrum and if you can’t afford that extra $100 you’ll be forced to take out another payday loan.
The payday loan cycle
The payday loan cycle is one of the worst financial situations to be in. You are pulled into the cycle when you can’t afford to pay back you first payday loan. This happens because payday loans need to be paid back by your next paycheque. Let’s say you take out a $500 payday loan today because you have no money and only get paid on Friday. But on the Friday the payday loan company takes back their $500 plus interest and now you have no money again and you need to pay rent and buy groceries. This is where the cycle starts because now you need to take out another payday loan to pay rent and buy groceries.
Small personal loans are just as simple and quick as payday loans but they come with significantly less problems. If you’re currently thinking about taking out a payday loan to cover some of your financial burden then we urge you to reconsider as a payday loan will not solve your financial issues, it will only create more for you. Instead choose a small personal loan from a private lender who will work with you to get the money you need and payment plan you deserve. Click here for a more in-depth comparison.
Interest rates associated with small personal loans are significantly less than those of a payday loan. Small personal loans are meant to help people with their finances and won’t suck them into a horrible cycle of debt. What’s even better is that because you’ll be able to afford your payments and won’t be forced to pay more in interest than the original loan amount.
Personal loans come with installment payment plans where you’re able to pay off the loan with small affordable payments over an extended period of time, unlike payday loans where the full balance needs to be paid back in one payment. A $500 installment loan will most definitely help you deal you’re your financial issues, whereas a $500 payday loan will only create more issues. A simple, inexpensive and easy to understand payment plan is the key to getting out of debt and making better financial decisions. An installment loan means you won’t be bogged down with the stress of making one huge payment, but instead you’ll have a longer payment period and make smaller payments.
Start the Process Now
You can start the loan process today and be that much closer to getting the money you need to help with any and all of your financial issues. You don’t have to be a slave to the predatory payday loan providers, instead take your finances into your own hands and apply for a personal loan.
Want to learn more about alternatives to payday loans? Visit this page.