Payday loans and personal loans are often confused as the same thing; while both can be used to finance upcoming expenses, they do have a set of differences. How to use each type of loan depends on the amount required, time needed to repay the loan, how much you can repay at a time and what the loan is for. Here we explain the differences so you can make an informed decision.
What Are Payday Loans?
Generally a Payday loan amount will range from $100-$1000 and be on a short-term basis. Payday loans are usually very fast to acquire, as it’s essentially just a pay advancement. There is rarely a full credit check and the loan is not secured. Here at Ferratum Canada we do not perform credit checks, so the processing is super fast. Repayments then coincide with payday, so repayments will be when it’s most convenient for you.
The main benefit of payday loans is the fast application process. For those who need a quick and easy cash advancement, payday loans can reach your bank account within 24 hours of approval. The loans are smaller and so repayments are manageable for most.
Payday loans are also favoured over credit cards and personal loans for their flexibility. There are less restrictions on how the cash is spent, and they are super easy to qualify for. Once you have accumulated a track record with the lender, some will gradually increase the amount of cash they can lend you each time. Thus emergency cash will almost always be available for you, should you require it in the future.
Finally, why bother making a special trip to the bank (often requiring taking time off work) when you can apply for a payday loan and be approved, whilst in the comfort of your home? Ferratum Canada offers 100% online payday loan for your convenience.
In spite of the value of payday loans, they do get a pretty bad reputation. Knowing your own situation and assessing your means to repay in time can make the huge difference between a successful loan to one that is not. With any financial service, knowledge is power and all consumers should be aware of drawbacks before committing.
Payday loans can have a higher cost compared to major banks, so it’s crucial to check the fine print first. If you don’t pay back your loan amount by the due date too, you’ll get overwhelmed with added fees and charge. However, this should not occur if the loan is repaid in the agreed time, therefore underlying the importance of careful consideration of a loan. Choose a company that is transparent with the fine print and important information to avoid excess charges racking up.
What Are Personal Loans?
Personal loans are generally created through a bank or credit society and are suited to borrowers requiring a higher amount of cash, for a longer duration. This funding option is great for long term assets or bigger ticket items, like mortgage repayments, holidays, investment opportunities, education, wedding day or home renovations.
Personal loans can be secured by an underlying asset, or unsecured like payday loans. To secure a loan against an asset, like a car or house, means that if you cannot repay the loan, the bank will seize the asset as payment. For this reason, the loan is less risky to the bank and so the interest rates are lower. For unsecured loans, there is no asset to seize, so if you cannot pay back the loan, you will have to default. This default risk is then reflected in the higher cost.
Personal loan agreements are made between the lender and borrower for an agreed amount to be repaid within a particular timeframe, similarly to a payday loan. However, the lender will generally run comprehensive credit checks and processing of these take more time. Credit specifications are set within a strict contract.
As there is no way of increasing the loan once it is created, there is no way to add impulse purchases, like with a credit card. For those who may have bad spending habits or just prefer to have that financial discipline imposed on them, personal loans can be ideal. They are also preferred if the cash requirements are greater than a payday loan can offer.
Secured loans are usually a safer option within personal loans, so by using the asset as collateral, you can take advantage of a lower cost loan.
Unlike payday loans, which almost always have the cash to you within a day, personal loan applications are a time consuming process. The bank will take into account your financial history, examine your credit history and do a credit audit. If you are denied, or have failed to get approval in the past, this will be noted on your credit history, which will make it harder to apply for a loan in the future.
Secured loans require you to put up collateral until the loan is repaid; should there be any reason that you are unable to meet your repayments, you could lose the underlying asset. On the other hand, unsecured loans are more costly.
Both types of loans can give peace of mind when making financial ends meet, however, it’s important to understand the terms. Personal loans can offer small loan amounts too but cannot match the speed
Whatever you decide, we always recommend that you make sure you get the right financial advice before you apply for anything.