When the need to borrow arises, payday loans and personal loans are two common choices. While it’s nice to have borrowing options, it’s important to understand the differences between the two loans. The following overview can help you make an informed decision if you aren’t sure which option is best for your needs.
How Do Payday Loans Work?
Payday loans are also sometimes referred to as “cash advance loans.” As the name implies, you will repay the full amount that you borrowed with interest the next time you get paid.
Payday loans are usually for amounts of $1,000 or less. When you apply, you will be required to give the lender either a signed check or a document authorizing the lender to withdraw the money you borrowed from your checking account.
If you are unable to repay the full amount the next time you get paid, an extension may be possible. Additional interest will accrue on the amount you owe, which will make repaying the loan much more expensive.
Payday Loan Pros
Payday loans do have some pros. But be sure to carefully consider everything before making a decision.
No Credit Check
Payday loans are very easy to qualify for. No credit check will be done, and it only takes about half an hour to get the money you need. There are usually only three requirements to qualify:
- A valid ID
- Proof of income
- An account with a bank or credit union
They Are Convenient
Payday lenders are very common. Most communities have at least one, so you shouldn’t have to travel far to borrow money.
Payday Loan Cons
Payday loans have several important cons that are deal breakers for many. Although they are convenient, problems can quickly arise if you’re not careful.
High Interest Rates
Payday lenders charge very high interest rates. The rate you will pay depends on the lender, but rates of up to 600% are not uncommon.
The Full Amount Will Be Due Next Payday
With a payday loan, you won’t be able to make monthly installment payments on the money you borrow. The full amount will be due by your next payday.
Payday lenders are very aggressive in getting the money they loaned back if you can’t repay. If you don’t repay the full amount plus interest by the due date, the lender will either process the check you signed or withdraw the money electronically from your checking account. If you don’t have enough money to cover it, it could result in an expensive overdraft fee.
How Do Personal Loans Work?
Personal loans are issued by either banks or credit unions. They are unsecured, which means that no collateral is needed. The amount you can borrow with a personal loan varies depending on the lender, although the typical range is $100 to $50,000.
Personal loans have fixed interest rates, and you will repay the loan with equal monthly payments. Repayment terms vary depending on the amount borrowed.
Your credit will be checked when you apply for a personal loan. Documents you will need when applying include:
- Tax returns
- Bank statements
- Pay stubs or W2s
- Proof of residence
- Government-issued ID
It may take up to five business days for your financial information to be reviewed. If you are approved, the funds will then be transferred to your checking account.
Personal Loan Pros
Personal loans have several important advantages over payday loans to consider. Although it may take a little longer to obtain a personal loan, the benefits may be worth it.
They Can Be Used for Many Things
There are usually few or no restrictions on what you can do with the money you borrow with a personal loan.
Competitive Interest Rates
Interest rates for personal loans are much more affordable than payday loans. They may even be more affordable than other types of loans, including credit cards or store cards.
You Don’t Need a High Credit Score
Lenders consider a variety of factors when evaluating loan applicants. Because of this, you may still be able to get a personal loan with a low credit score.
Predictable Monthly Payments
You will have several months or years to repay the money you borrowed with a personal loan. The loan terms depend on the amount borrowed and other factors.
Personal Loan Cons
Although personal loans are great borrowing options, they do have some cons to consider. But if you are in a position where you need to borrow, personal loans are still much better than payday loans.
There May Be Fees
Depending on your lender, you may be charged fees for applying, late payments, paying off the loan early, or something else.
Late Payments Will Damage Your Credit
If you don’t make your monthly payments on time with a personal loan, the credit reporting bureaus will be informed of the late payments and it will negatively affect your credit score.
The Baton Rouge Telco Solutions Loan
The payday loans vs. personal loans debate is easy to settle after you carefully evaluate each option. Personal loans are the clear winner. The interest rates are significantly lower, and you can take much longer to repay the money you borrow.
If you need a source of quick cash, a Solutions Loan from Baton Rouge Telco provides you with all of the benefits of payday loans without any of the negatives. You can borrow between $200 and $1,000 and flexible terms of up to six months are available. The interest rates are also competitive and there is no minimum credit score.
To qualify for a Solutions Loan, you must be a Baton Rouge Telco member for at least 12 months. There is a low $20 application fee, and your credit report must not show any open bankruptcies or foreclosures.
Check out the following link to learn more about Solutions Loans from Baton Rouge Telco.