subject: Should I Get a Payday Loan Over a Personal Loan? [print this page] Should I Get a Payday Loan Over a Personal Loan?
Relying on credit has become a normal part of everyday life. From overdrafts to credit cards, personal loans to payday loans, at some point or other, most people need an extra boost to their bank balance. However, not all forms of credit are created equally and some may be more suitable than others, depending on purpose and circumstances. So, if you need to borrow money, how do you know if you should get a payday loan over a personal loan?
In order to answer this question you need to look at various factors, such as what each loan offers, what you need the loan for and when you can afford to pay it back.
A payday loan is a short term, high interest solution. Various companies will allow you to apply, via websites, telephone applications, text message or even email, and receive an answer and funds the same day. You can usually borrow smaller amounts of money, up to around 250. The amount you can borrow can vary according to your history with the company supplying the payday loan. If you are a regular customer you may be able to borrow more, if you are a first time user, you may be offered less. Typically, payday loans are offered for 'a week', or until 'payday'. In essence, these are short term loans and the cost of borrowing can be high. On a 100 loan you can expect to pay at least 10 and for a 250 loan, you may be charged up to 50.
Payday loans are ideal if you are in a situation whereby you need cash now, but will be guaranteed to have the cash to repay the money very shortly. So, if you have issued a cheque and you do not have the funds in your bank account to cover it and you do not wish the cheque to bounce, you can use a payday loan to tie you over till pay day. The cost of the loan (10), would have to be less than the cost of a cheque bouncing (30) for the arrangement to be worthwhile. Other circumstances in which payday loans can save the day can be if you have an urgent utility bill to pay or you are faced with sudden repair costs.
As long as you ensure you can meet the terms, then payday loans can work. However, these loans can have extremely high interest rates and penalties attached to them if repayments are not met. Always read the small print and ensure you understand exactly the terms and conditions. You may also be required to have a regular income and a bank account that accepts direct debits - loans may be subject to credit checks.
A personal loan is more suited for those who wish to borrow larger sums of money over a longer period of time. A personal loan can help cover the costs of a new car, a holiday or home improvements. Interest rates and terms are agreed in advance and a structured payment system is set up. Usually obtained through a bank, those applying for a personal loan will be credit checked and be required to show evidence of regular income. Personal loans are more managed and therefore more manageable. They take monthly expenses in to account and through the application process, should ensure that you are financially comfortable enough to cover the repayments.
