Payday loan vs. personal loan: How to decide what’s best for you
Vinay Dogra
Vinay Dogra
Monday 22 Jul 2024
  • dp
  • facebook
  • twitter
  • dp




It can be quite important when one has to make a choice between a payday loan and a personal loan in case of meeting urgent financial needs. Below are brief descriptions that can guide you in making a right decision easily.


Payday Loans


Pros:


- Quick Approval: Approved just in 5-10 minutes and the money is available for a few hours.

- Easy to Qualify: Few credit checks, hence it is easy for people with a poor credit rating.


Cons:


- High Interest Rates: They can be very high reaching the 300s and above APRs.

- Short Repayment Terms: Usually over your next paycheck, and this could be within the two week mark.

- Debt Cycle Risk: Short term lending as well as high fees can amount to borrowing again and again.


Personal Loans


Pros:


- Personal loan Lower Interest Rates: Typically fall between 10% and 25% for the clients with a decent credit score.

- Longer Repayment Terms: May take anything between one to five years this way they can make their payments on a monthly basis.

- Larger Loan Amounts: Range between ₹50,000 to ₹40 lakh, depending with the lender and qualifications of the borrower.


Cons:


- Stricter Eligibility Requirements: It demands credit solvency and steady income.

- Longer Approval Time: Can from take few days to few weeks to be approved and funds to be released.

- Processing Fees: Can also involve origination fees and other costs and this increases the total amount to be paid.


How to Decide


1. Urgency:


- Choose a payday loan, if you need a small sum of money right now and can return the money very soon.

- Select personal loan if you have time to go for the application and want a relatively higher sum, but do not want to overburden on monthly payments.


2. Credit Score:


- Payday loans are attractive to people who have low credit rating and who may not be able to obtain other kinds of credit.

- Credit services, such as personal loans are suitable for people with a good credit ratings; they attract the lowest interest rates and charges.


3. Repayment Ability:


- But if for instance you can be in a position to repay the loan immediately you’ve been granted then, you can consider a payday loan as a form of short-term solution.

- If one needs more time to repay and desires low interest rate, then personal loan has to be taken.


Conclusion

Payday loans are suitable for emergencies requiring a small amount of money but are expensive and contain future dangers. Large sums of money are granted with more beneficial conditions but, to obtain this money, the borrower needs to have a high credit score and wait longer. Consider your overall and current financial status, your capacity to pay back the loan and how urgently you need a loan to arrive at the best decision.





ADVERTISEMENT