Personal Loan and Payday Loans having multiple benefits in terms of fulfilling the immediate need for money, but people often get confused between the two. Most people don’t understand when they should take what kind of loan and how it can help them overcome different kind of financial problems.
This is also partly the industry’s fault and the lack of knowledge of the consumer end. Most moneylenders themselves don’t have a clear idea of the differences between a payday loan and personal loan. In fact, some of them tend to use them interchangeably.
Thus, always be sure to check the repayment method when borrowing either a payday loan vs personal loan to ensure that you are getting the right product for your financial needs.
Now, let’s dive into the differences so you will be able to make an informed decision for yourself.
Who can you borrow Payday Loan/Personal Loan from?
A licensed moneylender is the only financial institution that offers both payday loan and personal loan. Most other financial institutions only offer personal loan.
What do you borrow it for and for how long?
Payday loans are borrowed for short-term use (think about 2-4 weeks), usually to pay off bills or emergency need within the month before your payday.
Personal loans are usually for long-term use (think about more than 4 weeks to a few months), usually to make a big-ticket purchase, investment or for business needs.
A payday loan is much easier to obtain because it, as its name suggests, depends a lot on your current employment status as well as salary level. E.g. if you have a Rs 50,000 salary, you are most likely to get a loan approval of Rs 25,000.
Personal loan, on the other hand, requires much more stringent checks. But it also allows you to borrow a larger amount, generally 2-4 few times of your salary depending on the financial institution.
Loan Processing Time
Payday loan has a much faster turn around time due to its simple verification process of salary and employment status.
Personal loan however may take 1-2 days for processing by the financial institution before you receive the cash. This is because it has to go through rounds of the check to ensure that the borrower doesn’t have a bad credit history.
Loan Interest Rates
A payday loan could charge a much higher interest rate as compared to personal loans, hence the shorter repayment period. This is also partly due to its loan nature and eligibility.
Conclusion of Payday Loans
In short, a payday loan is really great when you have an immediate financial need that cannot afford any delay (e.g. your electricity is getting cut-off). It also has a very high-interest rate, so unless you are at your absolute wits end, do not take up payday loan. Instead, try to borrow from your friends and relatives to tide you through that few days.
Personal loans are great if you require a huge sum of money for business or personal needs, and as long as you have a good credit history, you shouldn’t have any problem getting one. But borrowing a personal loan requires planning ahead because it generally requires a few days for processing.