Wednesday 24th of May 2017
No matter how hard we try and how much we save, financial worries can hit when we least expect it. Knowing what you can do when that happens can keep you ticking over until your next payday or gives you time to save. When financial problems occur loans can be useful to pay for bills or meet financial deadlines that keep you afloat.
Getting a loan from the bank can be a good option, unless you have a poor credit rating or have been declined a loan from the bank already. If you are in this situation then there is still hope. Payday loans can be given to those that have a poor credit rating and are great as a short term solution.
So what is the difference between a personal loan and a payday loan? Here we have compared the two to help you make the right decision.
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Short term and personal loans are two different types of loans offered in the UK. They both have different pros and cons and it’s important to make the right decision for your situation before you get tied up in a loan that you cannot afford to pay back. Here is the difference between the two.
Short term loans, otherwise known as payday loans, are small loans that can be taken out as a stop-gap between paydays. They usually only last two weeks and offer loans up to £500. Anyone over the age of 18 can get a payday loan, though interest is usually very high. This type of loan is well suited to those that know for certain they will be able to pay the money back at the end of their agreement.
A short term loan is simple to set up, usually by filling in an application form online or calling the lender directly. Your loan will be transferred into your bank very soon after applying for your loan. This amount will be yours until the specified repayment date, usually on your payday, where the lender will take the money from your bank account along with interest.
Short term loans are an easy option for those that have a poor credit rating or those who have been rejected from a loan at the bank. These lenders tend to lend to those that struggle to find a loan elsewhere which is why interest and APR is very high on these type of loans.
Your credit rating will not be negatively affected if you decide to take out a short term loan, however, if you fail to pay your loan back on time then you will get a lower credit rating. Those that pay back their loan on time and in full may improve their credit rating.
Though lots of people do use payday loans, it is advised to only take one out if you know for certain that you will be able to pay your loan back on time and in full or you will be hit with lots of interest on your loan. This is one of the most expensive ways to borrow money.
Personal loans are loans that are given by the bank or by another lender and this is paid back over a monthly period. They are otherwise known as unsecured loans because they are not secured against any property. Repayment amounts will be on a monthly basis making it easier to plan and budget your spending every month. Another great thing about a personal loan is that interest rates and APR tend to be fixed, preventing high fees and extra payments.
Personal loans give you the option to set how much you pay every month and are a great idea for those that are in debt or want to pay the money back in small chunks. They are also more beneficial for those looking to take out a bigger loan, for example, a car loan.
Just like payday loans, personal loans are not always bad for your credit rating. Those that cannot keep up with repayments and miss deadlines will get a lower credit score. Those that are able to keep up with their repayments may have a better credit rating when completing their loans.
If you are considering taking out a personal loan, it’s important to shop around for the best prices and deals on offer. Don’t always go for the first loan you are offered to make sure you get a good deal. Check interest rates and APR for any fixed loans. Check for any hidden fees so you know how much you will be paying before you enter into your loan.
As with anything, both short term and personal loans have their pros and cons. Though they are both great ways to borrow money, they will only be suited to those in a certain situation. Short term loans are better suited for those looking for a small sum of money and can pay this back on their next payday. Personal loans are better suited for those looking to take out a larger loan and would like to pay it back in monthly installments.
Short term and personal loans are both great ways to borrow money for days when the finances need a little boost. As long as these payments are manageable and affordable then this could be a simple way to borrow. Those that are struggling to know their next payday could end up in a dangerous situation using either short term or personal loans, and should consider whether they can afford repayments before applying.