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If you need cash quickly, there are several loan options, including personal loans and payday loans.
Personal loans are installment loans with lower interest rates than other credit products, making them a good choice for many borrowers.Payday loans, on the other hand, short term loan This usually comes with a hefty fee. As a general rule, avoid using personal loans and consider them only as a last resort.
Here’s what you need to know about the difference between a personal loan and a payday loan and why you should pay attention before taking a payday loan.
Payday Loans vs Personal Loans: What’s the Difference?
payday loan yes personal loan Both are unsecured loans that allow you to borrow money in a lump sum after approval. But these loans are more different than similar. Here is a breakdown of the key differences between payday loans and personal loans:
- Amount borrowed — Payday loan amounts starting at $50 $1,000, depending on your state’s laws. According to the Consumer Financial Protection Bureau (CFPB), most payday loans are under $500. Meanwhile, according to the US Chamber of Commerce, personal loans range from $100 to $100,000, with an average loan amount of about $8,000.
- Payment Terms – Personal loans typically have a repayment period of 12 to 60 months (sometimes longer). Payday loans, on the other hand, typically require him to repay the loan amount (and fees) in one lump sum before his next payday.
- interest rate – The average interest rate for a 24-month personal loan in the first quarter of 2022 was 9.41%, according to the Bank. Federal Reserve DataInterest rates on personal loans are generally lower than those on credit cards, so you can combine multiple high-interest credit card balances into one low monthly payment. Payday loans typically charge a percentage or amount for every $100 you borrow. That fee is typically around $15, effectively equating to nearly 400% annualized rate (APR) on his two-week loan, according to the CFPB.
- Credit impact — If you have a personal loan, your lender will likely report your monthly payments to the major credit bureaus, and making timely payments can improve your credit. Unfortunately, payday loans don’t show up on your credit report unless your account is overdue. This can negatively affect your credit score.
What you can do with Credible View pre-qualified personal loan interest rates From multiple lenders, all in one place. And it doesn’t affect your credit score.
Advantages and disadvantages of instant loans
Like most loans, payday loans have pros and cons to consider.
- Easy to qualify – Payday loans generally do not require a rigorous credit check and may qualify applicants with below average credit scores.
- Fast fundraising — It is not uncommon to receive payday loan fund Same day or next business day after approval.
- High fees and interest — Loan fees for payday loans range from $10 to $30 for every $100 borrowed over a two-week period.
- Rollovers can lead to cycles of debt. In many states, payday lenders can offer rollovers if you cannot repay your loan on time. So, while the lender is extending the term of the loan, only loan fees have to be paid, resulting in more fees and debt.
personal loan alternatives
Payday loans should be avoided whenever possible. If you need money quickly, you have options such as:
- personal loan
- credit card
- Alternative Payday Loan (APP) Offered by Federal Credit Union
- Home Equity Loan, or HELOC
- Borrowing money from friends or relatives.
Personal loans are a cheaper alternative to payday loans. They usually come with lower interest rates and take much longer to pay off the loan than payday loans.
If you are in urgent need of money, a personal loan from an online lender can take less than a day to raise funds, and lenders often approve your application within minutes.
Instead of taking out a personal loan, consider taking out a personal loan. Many online lenders allow you to prequalify without affecting your credit. If you don’t qualify for a personal loan, check other options at this time.
best small personal loans
How to avoid predatory lenders
With high interest rates and fees and short payment terms, payday loans can be considered a form of predatory lending.
Here are the warning signs of predatory lenders to look out for.
- Do Not Disclose APRs or Fees: By law, lenders must disclose the APR and interest rate of their loans, but predatory lenders can make this information difficult to find.
- Negative consumer reviews — Taking into consideration the opinion of the landlord best business office, Federal Trade Commissionyes a reliable pilot Check if the lender is reputable. If most of the reviews you encounter are negative, you may want to avoid this lender.
- No income or credit check: Personal lenders usually determine the likelihood of repayment of a loan by conducting a credit check and requesting documentation of proof of income.if the lender does not verify your income, or check your creditIt can be a sign of predatory lending.
- Encourage repeat loans: Predatory lenders can encourage borrowers to extend loans or refinance new ones, leading to a debt cycle.
Payday loans almost always carry significantly higher costs and risks than personal loans. With lower interest rates, longer payment terms, and larger loan amounts, personal loans are a better option than payday loans if you are in urgent need of cash.
If personal loans are right for you, visit Credible for quick and easy access. Compare personal loan interest rates Find the lender that meets your needs from multiple lenders.