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Traditional vs Payday Loans - Which Is Better?

ScalesTraditional personal loans and pay day loans have quite a few things in common, with the exception of one thing.

Just like bank loans for instance, a payday loan needs to be paid back according to the terms and conditions the lender and the borrower have both agreed upon.

That is why if you currently need to take out a loan, it's essential that you learn more about its pros and cons and consider one that’s suitable for your specific situation.

Traditional Loans

A traditional loan is a lot like any other type of regular loan. This means that when someone applies for one, they'll need to submit information about their income (mostly in the form of pay stubs) in order for the lender to review it and then decide whether that individual is eligible for the loan or not.

When someone is approved for a traditional loan (which is generally issued by banks) they'll be assigned a monthly payment and interest rate based with on the agreement to repay. As for the repayment period, most traditional loans will have to be repaid within several years. Before approving an applicant for a loan, the lender will analyze his financial situation in order to determine how much he can afford towards the loan every month.

Payday Loans

As the name implies, a payday loan will usually have to be repaid on your next paycheck and in order for someone to qualify for one such loan, they need to be at least eighteen years of age, have a job and earn a steady income and also have a bank account. However, one thing to keep in mind is that people who are self employed and need to take out one such loan to deal with their financial emergencies won't be able to do so. That’s because payday lenders don't lend money to those who fail to meet their minimum eligibility requirements.

The great thing about payday loans is that lenders aren't interested in the applicants' credit history in order to determine their eligibility for receiving one such loan. Also, there are usually no interest fees that borrowers need to pay and instead, they're going to pay a set amount of money for every one hundred dollars they borrow.

This amount ranges between ten to thirty dollars. So if someone were to take out a $1000 loan, they'll need to pay back between 100 dollars and up to 300 dollars in fees. As you can tell from this, taking out a payday loan is more expensive in the long run than taking out a traditional loan, but the former comes with the massive advantage that it can be wired to your bank account in just 24h. Learn more about payday loans here - www.consumerfinance.gov or here - www.credit.com.

Which one is better?

There are a lot of people who are torn between taking out a payday or a traditional loan, but deciding on the best one for your needs is actually easy. Since a payday loan will have a limit of a thousand dollars, this means they are a great choice for those who need money fast in order to deal with various financial emergencies. Keep in mind though that compared to unsecured traditional loans, payday loans have much higher fees. Their main benefits are the fast approval time and the fact that payday loan lenders don't look at your credit history in order to determine your eligibility for one.

On the other hand, if you need a lot more money than a thousand dollars, then it's a good idea to look for a lender that can approve your loan request even if you have bad credit. While this is rare, if you are indeed approved, then you'll need to pay much higher interest rates. Therefore, if this is not an option for you and your particular circumstances make it hard or almost impossible to take out a regular loan, then a payday loan may be just what you need to solve your financial emergencies. We also have an article with 14 useful tips on improving one's credit score.

All in all, make sure to do some good research before you decide to take out a loan. There are many lenders out there you can consider and given the fact they all have different interest rates, if you're diligent, then you can certainly find one that has decent fees in place.

Get Started!

Consumer Notice: Consumers facing debt and credit difficulties should seek out debt and credit advisory help. Payday loans are not an effective way to solve such a problem, and may get one further in to debt. Federal and state laws cover certain types of lenders and loans, including short-term loans. Consumers are encouraged to research laws that may be applicable to payday loans, as well as ask their lenders for more information.
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