What are Payday Loans – Difference Between Payday and Personal Loans

We’ve all faced a situation in which we need a small loan to tide us over for a short period. Maybe we’ve spent too much through our credit card and can’t pay the bill or we meet a sudden expenditure that we hadn’t budgeted for. In such circumstances, availing a small loan may be the best option rather than borrowing money from friends or family. 
When you find yourself facing unexpected financial challenges, a payday loan or a Personal Loan can offer a quick solution. Payday Loan and Personal Loan are two common types of loans that individuals often consider during financial emergencies. Read on to know their differences so you can decide which one to opt for when in need of funds. 

What is a Payday Loan?

A payday loan is a short-term loan designed to provide immediate cash flow to borrowers who need money urgently. Payday loans are named in such a way since their main function is to assist you in covering your bills till your next pay check arrives. Typically, it is repaid on the borrower's next payday. These loans often have higher interest rates and are available without a credit check.
Payday loans are typically so little that you can pay them back completely at once, eliminating the need for instalment payments. You can utilise a payday loan for anything, such as helping you with your rent, utility bills (like internet and electricity), and other expenses. They are an unsecured loan that does not need any collateral. Although the interest rate is high, it is very simple to avail this kind of loan.  
A payday loan can be availed instantly within a couple of days of applying for the loan and they require minimal documentation. Generally, you only need to provide your KYC details and your monthly financial statements to avail a payday loan.  

What is a Personal Loan?

A Personal Loan is a type of credit that allows borrowers to obtain a larger sum of money typically for a longer term compared to payday loans. This type of loan is generally repaid in monthly instalments and requires a credit check.
A Personal Loan allows you to borrow a high loan amount that you can pay back over months or even years. Usually, a Personal Loan can be availed for a maximum amount of ?30 Lakh, and you can repay the loan over five years. The interest rate for a Personal Loan is usually around 10% per annum (which is lower than that of a payday loan).  
You can apply for a personal loan for any reason, including funding a wedding, paying for a medical emergency, or funding a vacation. Lenders typically depend on your credit score and financial statements to determine your eligibility for a personal loan. Should you fulfil all prerequisites, your chances of being approved for a Personal Loan are quite high. 
The Personal Loan can be repaid in modest EMIs. Generally, a Personal Loan is used by people who need to meet a high unplanned expenditure. It can help you meet sudden expenses without having to collateralise your precious assets. 

ALSO READ :- How Personal Loan Can Be Used For Home Renovation or Office Interior?

Differences Between a Payday Loan and a Personal Loan 

To better understand the contrasting aspects, let's compare a payday loan and a Personal Loan:

Should You Opt for a Payday Loan or a Personal Loan?

A Payday loan and Personal Loan are meant for different purposes even though both types of loans can be used to cover any expenses. Choosing between a payday loan and a Personal Loan depends on your specific financial circumstances. 
A payday loan is ideal for immediate cash needs, such as medical emergencies or for making utility bill payments, while a Personal Loan is more suitable for long-term financial planning or major expenses like home renovations. Consider factors like loan amount, repayment terms, interest rates, and your credit score before making a decision.

How to Apply for a Payday Loan and Personal Loan Online? 

Applying for a payday loan online involves the following steps:

• Step 1: Choose a reputable payday loan provider.
• Step 2: Visit their website and complete the online application form.
• Step 3: Provide necessary personal and financial details.
• Step 4: Submit the application form.
• Step 5: Receive loan approval and funds directly into your bank account.

Applying for a Personal Loan online involves the following steps:

• Step 1: Press the ‘Appy Now’ button to open the application form.
• Step 2: Enter the required details and upload all the important documents.
• Step 3: Lastly, tap the ‘Submit’ button to complete your application.

To Conclude

Understanding the differences between a payday loan and a Personal Loan is vital in making the right financial decision. While a payday loan offers quick access to cash, a Personal Loan provides a more flexible and affordable borrowing option. 
Consider your financial goals, repayment capabilities, and urgency of funds before choosing the loan that best suits your needs. Also, make sure to only go for trusted lenders like Poonawalla Fincorp when applying for a Personal Loan to meet your fund requirements.

Frequently Asked Questions About Payday Loan

1.    Will getting a payday loan affect my credit score?
Payday loan lenders usually do not report to credit bureaus. However, if you fail to repay the loan, it may be sold to a collection agency, which can negatively impact your credit score.

2.    Are payday loans available for self-employed individuals?
Yes, payday loans are available for self-employed individuals as long as they provide proof of consistent income.

3.    Can I repay my Personal Loan before the agreed tenure?
Yes, most lenders allow you to prepay your Personal Loan, but you may incur prepayment charges.

4.    How long is the average repayment term for a payday loan?
Typically, payday loans have a repayment term of two to four weeks.

5.    Can I get a payday loan with bad credit?
Yes, payday loans are often available to individuals with bad credit since they usually do not require a credit check.