Comparing Bank Loans and Payday Loans
Posted on Monday, August 2nd, 2010 at 2:19 pm in Financial Planning, Helpful Payday Loan Info
American consumers have several options for borrowing fast cash to fund emergency expenses, large purchases, and monthly bills. With the increasing popularity of payday lending, many banks have also started offering unsecured personal loans for smaller expenses. Personal bank loans and payday loans both offer customers convenient access to cash amounts for short term spending and both are well suited for specific kinds of cash needs. But before you decide to borrow either a personal loan or a payday loan, here are some points to consider the pros and cons of both.
Personal Bank Loans
Personal loans are credit-based lending from a banking institution offering customers cash amounts up to $15,000 for specific expenses like purchasing a new car or completing home renovations or making a large, one-time purchase. Personal loans usually have terms up to a year or longer and are paid back in monthly installments. If you need to borrow over $1,000 for a large purchase or special one-time expense, a personal loan can be a better solution for consumers who would prefer not to make such purchases on credit. However, getting approved for a personal loan requires a credit check and you will need to explain your plans for your borrowed cash to your lender. It’s up to the lender’s discretion to award the loan based on credit, financial need, and your reasons for borrowing. If you have bad credit or would rather not have to explain your need for a cash loan, a personal loan from the bank may not be the best option for you. You will also be paying for your temporary cash needs in installments for a year or more, long after your temporary expense has been covered.
Payday Loans
Payday loans are a shorter term lending solution for smaller cash amounts up to $1,500. Payday loans are most frequently used by consumers who need a little extra help with the bills this month or need to pay for emergency car repairs medical care. Payday lenders do not require an explanation or a credit check for borrowing temporary cash. Instant payday loans are approved based on the customer’s monthly salary; as long as your income is enough to pay back the loan at the end of the month, your lender should give you instant approval.
Payday loans can create debt problems for borrowers who use them less responsibly than they should. Some customers who cannot afford their loan choose to roll it over from month to month, incurring higher service fees with each roll over. Before you borrow a payday loan, ask yourself how much money you really need and make sure you can afford to pay back your borrowed funds with a single payment at the end of the month to avoid the accumulation of interest charges.
Examine your financial need before deciding whether a personal loan or a payday loan is the right option for you.
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