Personal Loans vs Payday LoansBy Caitlin in Loans
If for whatever the reason you find yourself in a situation where you are tight on cash but require a large sum of it to make some sort of purchase or payment, you may cross roads with the option of applying for either a personal loan or a payday loan. But which is the right option?
If you break a loan down to a lower level you’ll find that a loan basically consists of only a few factors: the size of the loan, the term of the loan and the cost of the loan. One other method which is worth mentioning is the payment method required to pay down the loan, as it is important when you consider payday loans. With this in mind you have to ask yourself the following questions:
1. How much money do you need?
2. When do you need it by?
3. How much can you afford to pay back each month? (This relates to the cost of the loan, e.g. the interest rate)
4. How long can you afford to make your payments for?
So, let’s look at a few different scenarios to see what kind of loan works best for you.
If urgency is a factor, and the amount of money you need is less than $1500, then a payday loan is the way to go. Payday loans are quick and easy, and they work in a very simple manner: you acquire the loan you apply for and on the day you are paid a specified amount of cash is withdrawn from your bank account to pay down your loan. It’s a fast and easy approach because you can obtain the loan you apply for very quickly and without any headache so long as you meet the loan qualification requirements.
Payday loans are known for being expensive, but the cost is justified by the seamless automation that most payday lenders offer.
If you require a larger loan then your first option might be to apply for an unsecured personal loan. Also small in size (usually no greater than $5000), this type of loan isn’t as “automated” as a payday loan yet still quite fast to obtain (especially if you compare it to something like a home equity loan). The repayment method varies from lender to lender. The cost of an unsecured personal loan is only a fraction of that of a payday loan.
If the cost (interest rate) of a loan matter a lot to you, then an unsecured loan may not be the right approach for you. For a loan to be cheap the lender will want to some form of guarantee to diminish the risk and loss that would come with a default. Common assets used to secure a loan are cars and/or property. Individuals searching for small loans often choose not to refinance their homes (the cost of breaking a mortgage might offset the benefits), so refinancing their vehicle instead is a good alternative. This is quite easy to do if you own your vehicle or possess a lot of car equity (e.g. you have paid off a large portion of your financed vehicle).
What do you think is the best option? Tell us by leaving a comment below.