A comparison of Payday loans and Personal loans.
Introduction.
Arranging to borrow money from an online lending company is now a straightforward and simple task that thousands of people do every day. Two of the commonest types of loan taken out online are ones known as Payday loans and Personal loans. A Payday loan is invariably a short-term loan taken out between receiving one pay check and the next to cover some shortfall or emergency that you couldn’t budget for. A personal loan tends to be taken out over a longer period as part of a planned budget to cover the cost of a particular expense you have to incur.
Payday loans.
There is no escaping the fact that Payday loans have a poor reputation. They are associated with loan sharking, whether inside or outside the law, as they often have a high rate of interest. However, for many people a payday loan can be a lifesaver when taken out with forethought and consideration. If you apply for a Payday loan you’ll find that it will be quickly approved and arranged, almost regardless of your credit rating, and the cash will be available to you within 24 hours. If you find yourself needing to take out a Payday loan make sure you can meet the repayment when your next pay check arrives. If not you may well find that the rate of interest spirals rapidly and you find yourself unable to repay the loan, plunging you into more debt. Exactly the situation you were trying to avoid.
Personal loans.
A Personal loan is one that you would take out over a longer period of time and would be of a considerably higher value than a payday loan. Whereas a Payday loan should only be for a few hundred dollars at most a Personal loan will be for several thousands of dollars. Whilst the interest rate of a Personal loan will - or at least should - be less than that of a Payday loan, the repayment plan for the Personal loan will be over a longer period. Subsequently pro rata the percentage of interest you pay in total on the Personal loan could well exceed that of a payday loan that you repay promptly.
Which one should you use?
The answer to that question simply lies in the reason that you need to take out a loan. If you need a small amount of money and need it quickly then a Payday loan might be appropriate for you. This of course raises the issue of what is a small amount of money; we might as well ask “how long is a piece of rope”?
For the purpose of a Payday loan I would advise the following rule of thumb. First, be quite clear that you have exhausted all of the alternatives to taking out a Payday loan from a lending company. Remember, a reputable financial expert would not recommend having a Payday loan other than as a last resource.
Next, make sure you fully understand the repayments you will have to make and what might happen to those repayments if you cannot clear the debt with your next pay check. Next is the tricky question of how much should you be taking out as your Payday loan. First I would add up what all my unavoidable expenses are that I will need to cover from my next pay check. For example this would include things like; my rent or mortgage repayments, my car loan, a minimal weeks worth of food, my utility bills like electricity or gas etc. Deducting those essential things from the total of the wage check I’m expecting I’m left with my disposable income. That’s the money I would normally spend on socializing, clothes or treats etc. This disposable income is the maximum I can afford to ‘not spend’ after my next pay check and, therefore, can be used to pay off any loan. So, taking the amount of the loan and the interest I will have to pay, my disposable income is the maximum I would borrow on any one Payday loan.
If I needed to borrow more than I could comfortably afford to repay with my next pay check I would look to borrowing on a Personal loan. Applying for one online is quick and easy and, these days, they are invariably arranged within 24 hours with the cash also available to you within a day. Remember with a Personal loan you may need to have a credit report, you will still have to pay interest on it and may find that you have to take out a minimum amount which might be more than you actually need at the moment. Also, the repayment period will inevitably be over a longer time frame. So, if you do decide to take out a Personal loan you should view it as part of your longer term financial planning.