If you have a tough situation that can be resolved easily with borrowing some cash, you most likely have 3 options: borrow from friends/family, take out a personal short-term loan or apply for a payday loan. If your family/friends are able able to help you at the moment, you have to choose between the 2 latter products.
What is a payday loan?
Payday loans are short-term loans for small amounts of money. They are best suited to people who need $100-$1,000 right away, 24/7. If you apply for such a loan, you should expect to have the money in your bank account as soon as the same day or the next day. Moreover, you can be eligible for a loan if you have a bad credit history and informal employment. Generally, you can get a payday loan with no collateral, no paperwork, no safety and no guarantors. The application is fast and hassle-free. Payday loans have relaxed eligibility criteria and often involve no hard credit checks.
Are short-term loans the same as payday loans?
Usually, payday loans from microfinance institutions are for smaller amounts of money and shorter terms than traditional short-term loans issued by banks. Loan sie is usually limited to $1,000, lending terms do not exceed 4 weeks. Short-term loans usually offer larger amounts of money and may be issued for up to 12 months.
The most noticeable difference between traditional short-term loans and payday loans from microfinance institutions is the number of repayments you have to make under agreemen terms. You typically pay off a payday loan within 1-4 in one lump payment. With a regular short-term loan, you usually pay off your loan from 2 months to 1 year.
Are payday loans always more expensive?
Typically, yes. But there are exceptions. The truth is that payday loans are shorter and they might actually be cheaper overall as you repay them in 1-4 weeks and have less time to accumulate interest. It largely depends on your APR. Always read your loan agreement carefully before signing it.
Both types of loans often have similar APRs. The difference will be the period length you select when applying for a loan.
Are there any differences in the application process?
Typically, applying for a payday loan and short-term loan is a very similar process. The lender will ask you to provide the same personal information. To borrower funds, you usually need to follow the same steps:
- Make sure you meet the basic borrower requirements (be of legal age, have a stable income and a valid bank account in your name);
- Select the desired loan amount and term;
- Use our online referral platform to fill out a short application;
- Get connected to the right lender for your needs;
- Read the loan agreement and make sure you agree to the loan terms and rates offered by the lender;
- E-sign the loan agreement.
So, which loan should I choose?
- Payday loan – if you only need $100-$1,000 for a short term not exceeding a few weeks, this could be the best option. This is also the only available option is you have a bad credit history;
- Short-term loan – if you need an amount exceeding $1,000 and for a longer term (up to 1 year), you should probably choose a short-term loan. This option is also the best option if you have a good credit history.
Before applying for any loan type, we suggest that you check your credit history (you can order it online from annualcreditreport.com free of charge annually or call 1-877-322-8228) as this will help you understand which loan type is right for you.