According to financial research, 47% of Americans are spending more than or equal to their total income.
Maybe you need a large sum or maybe you only need extra cash to get you through the week. Don’t make the mistake of picking the wrong type of loan and falling into a financial trap.
We talk about the differences between these two types of loans and which kind you should get yourself.
The Difference Between Payday Loans and Personal Loans
Both payday loans and personal loans have their pros and cons. Payday loans can be risky if you don’t understand the consequences before taking one out. Personal loans can also present problems such as high interest rates, however.
The Interest Rate
Personal loans no credit check don’t usually take a form of collateral. Instead, the borrower pays back their principal amount and interest charges. The interest rate depends on your credit score and history.
Don’t know your credit score or how to boost it? You’re not alone. Roughly 4 in 10 people don’t know how credit scores are determined.
Thankfully, you can request your report online through a major credit reporting agency. Certain credit cards and banks also allow you to check your FICO score.
Payday loans no credit check have much higher interest rates than personal loans. These can range anywhere from 300-500 percent APR. And yet, they may actually be cheaper than overdraft fees and missed payment penalties.
Not everybody qualifies for an unsecured loan. Lenders often make sure your credit rating is decent before taking any risk.
If your credit score isn’t phenomenal, a lender may deny you a personal loan. Background checks reduce high-risk cases, making it challenging for people with bad credit to find help.
However, it’s not impossible. There are still ways to get a loan without a credit check.
Payday loans are another option for people that need a small amount of money in a hurry. Keep the high interest rates and fees in mind and make sure you can pay it off with your next paycheck.
For this reason, payday loans are best for sudden emergencies. They are fast and convenient as long as you can repay them.
When using payday loans online no credit check, expect to pay an upfront fee. These fees may range from $10-$30 for each $100 you borrow.
Here’s an example:
John needs to borrow $300 before his next paycheck comes in. The payday lender charges him a $15 fee for every $100 he borrows. When his paycheck comes in next week, John pays the lender $345 in total.
If you can’t pay your loan back in time, you face rollover fees. This means that your due date is now extended but you owe rollover penalty fees. These extra expenses can pile up, so make sure you pay your loan back as soon as possible.
The Amount You Can Borrow
Short-term installment loans range from anywhere between $200 to $5,000 but may vary depending on the lender. These loans are small amounts of money that can be repaid quickly.
Personal loans are paid back over time and range from $1,000 to $50,000 or more. The amount you can borrow in a personal loan is usually higher.
If you only need a small amount of money to get you through until your next paycheck, a payday loan is the better bet. Personal loans are better for expensive investments and funding.
Secured or Unsecured Loans
A secured loan requires the borrower to pledge some form of collateral such as a car or house. If the borrower cannot pay back the loan, a creditor can seize their asset.
An unsecured no credit check loan doesn’t need a form of collateral. These types of loans are more common especially when taking out small amounts. Unsecured loans tend to have higher interest rates than secured ones.
Short-term loans like a payday loan are almost always unsecured. Be careful if you put up collateral on any type of loan.
Early Payment Penalties
Although it might sound strange, some quick loans have prepayment penalties. This means that you are actually penalized with extra fees if you try to pay off your loan too early.
One reason a lender may use prepayment penalties is to make sure you pay a certain amount of interest on your loan. Always read the fine print or ask your lender if there are any early payment penalties. Both personal loans and short-term loans may have these extra fees.
Short Term Payday Loans vs Personal Loans: Which Is Right for Me?
If you only need a small amount of money to get you through until your next paycheck, a payday loan is a good solution. At some point, we all face financial struggles. Short-term loans are ideal for these emergencies.
If you have subpar credit, a payday loan is always an option. Just make sure you can pay the amount back as soon as possible to avoid extra penalties like rollover fees.
It’s also easy to get a payday loan, all you need is a valid form of ID and proof of income. Make sure you come prepared with questions to avoid any costly fees later. Ask about processing fees, penalties, and how much you will have to pay when the due date rolls around.
But what if you need more money than a short-term loan offers?
Personal installment loans and large-sum loans are better for expensive investments. If you’re buying a car, remodeling your home, or consolidating credit card debt, get a personal loan.
Know What You Need Before You Borrow
The bottom line is that short term payday loans and personal loans can help you if you’re in a tight spot. Before borrowing money, make sure you know how much you need and whether you can pay it back in time.
Payday lending is best for short-term emergencies. Personal loans are best for those that need money for an investment or debt consolidation.
Once you’ve decided on getting a loan, Bonsai Finance can help. Learn more and request a loan today. Here are some other articles you might find interesting:
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