Personal Loans vs Payday Loans: What's the Difference?
Life doesn’t always go to plan and when you’re dealing with changes that your bank account isn’t ready for, then it’s time to look for the right lender to help ease your financial burdens. It’s understandable to steer clear from the thought of borrowing money, but keep in mind that there’s nothing wrong with getting loans — failing to pay your debts, however, can bite you back with a vengeance.
That’s why when you’re strapped for cash and need to borrow to cover your financial situation, it’s important to consider different loan arrangements so you can choose an option that you can afford. For quick loan applications with faster repayment times, borrowers like you may run into two loan types: personal loans and payday loans.
On the surface, both are short-term loans that allow fast approval with looser credit score requirements, but the contrast between the two can make all the difference. Here are two critical differences worth noting:
Payday vs Personal Loans - What’s The Distinction? A Lot!
Factor #1: The Borrowing Costs
Personal loans vary in size and can range from $1,000 to $5,000 depending on the lender, your credit score, income, and other pending debts. There are no upfront fees, though it does come with an interest rate that varies depending on your risk level as a borrower.
Payday loans, on the other hand, cover between $100 to $1,000 with an upfront fee between $10 to $30. It seems like a small amount, but it can amount to an effective annual percentage rate of 400 percent or more. The small increments can grow until it makes a dent in your pockets when it’s time to cough up what you owe on your next payday.
Factor #2: The Payoff Time
The payoff time is arguably the biggest reason payday loans can be dangerous, especially for borrowers living on paycheck to paycheck. If you borrow $1,000 for emergencies such as groceries, medical bills, or other needs, how confident are you with your financial stability that you can safely pay it all back on your next payday?
There’s little-to-no time to save and generate more income within two weeks. That’s why personal loans are generally the safer choice, despite having stricter credit requirements. You can set your payment term to a year at the least, though some can stretch it for a decade depending on the lender. The more time you have to make small payments, the higher chances of completing the amount you borrowed.
The Bottom Line: The Importance of Differentiating Personal and Payday Loans
Both personal loans and payday loans offer quick cash for emergency purposes, but the difference can be staggering if you consider the repayment terms. Personal loans give you at least two years to build your finances and pay your obligations, but you only get one month to meet all your dues with payday loans.
The tight schedule can trap you in a cycle of debt, especially when an emergency hits, that’s why it’s crucial to understand the differences with your loan options so you can ensure you’re signing into real installment loans.
Are You Looking for Installment Loans For Your Needs?
Finding and obtaining the ideal loan size that meets your financial situation can be challenging for anyone, especially for those with less-than-ideal credit scores. Stones River Credit can ease your financial burden without trapping you into a riskier deal, especially since we offer personal loans for borrowers with bad credits in Murfreesboro, TN.
We strive to simplify the loan process so you can get a hassle-free experience, so get in touch with us today at 615-930-3607 to begin your application process. After all, we’re all about making fair, honest, and straightforward loans!