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:
| Parameters |
Payday Loan | Personal Loan |
| Duration of loan |
It is a short-term loan |
It is a long-term loan |
| Loan amount | The loan amount is usually lower than your monthly salary to cover small expenses like rent payments, utility bill payments, etc |
The loan amount is relatively higher to cover unplanned expenses like short vacation weddings or medical emergency |
| Credit Check | Usually, no credit check is required |
A credit check is mandatory |
| Repayment option | The lump sum amount is to be paid on the next payday | Paid over an extended period through multiple monthly instalment payments |
| Interest rate |
Interest rate is generally high |
The interest rate is comparatively low |
| Eligibility criteria | Based on income and employment | Based on credit score and repayment ability |
| Ease of approval | Often quick and easy approval | Slightly more difficult approval process |
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.