If you find yourself scraping coins out from under the couch cushions at the end of every month, there's a good chance that one day you'll consider applying for a payday loan. But, before you do that, know that there's another way to get enough money to see you through to the end of the month. In this article we look at both personal and payday loans and explain how the one offers significant benefits over the other.
A payday loan is taken out over a very short period of time (on average 2 weeks), and is best suited to people who need cash right away. If you took out this type of loan, you would probably have the money in your account by the next day, and you don't have to have a good credit score to qualify for one. In fact, you can take out a payday loan with no collateral and no co-signers, making it the only option for some people who need to borrow money immediately.
The danger of a payday loan is that it comes with a very high interest rate. After the administration fee and interest, many borrowers find that they can't afford the repayments. You might then think that the extensions offered by some lenders would be a relief, but a longer repayment period only means that borrowers incur more interest, putting them into a cycle of crippling debt that is hard to escape.
Personal loans come with longer repayment terms and lower interest rates, making them more affordable than payday loans, especially if you have a good credit score. Reputable and responsible lenders that offer personal loans often have more accurate credit scoring systems, meaning you pay an interest rate based on the risk you pose to the lending institution and not the risk posed by the average borrower, which in the case of payday loans is quite high.Or better yet, read our blogs on how to budget, save, and create an emergency fund, so that you don't have to rely on a loan to get you to the end of the month.