If you need to borrow some money, they are different ways of getting it. Taking out a loan is a decision that should not be taken lightly so it is worth researching the different options available to you. The type of loan you choose will depend on several factors, including the amount of money you need, how long you require it for and your personal circumstances.
There are a few big differences between bank loans and payday loans which we will discuss here. Knowing more about each type of loan will help you understand which of these options is best for you in your situation.
The Size of the Loan
Payday loans are typically a lot smaller than bank loans. A payday loan would usually not exceed £1000. Bank loans, on the other hand, can be for thousands of pounds and are therefore normally used for larger purchases such as a car or property. Payday loans are intended for small purchases such as groceries or perhaps an unforeseen bill.
The Length of the Loan
Payday loans are leant for a short amount of time, usually just up until the borrower’s next pay cheque. Most companies such as creditpoor.co.uk allow the customer to select their repayment date so that they can choose how long they need the money for. They are designed to be short term, so the interest is not too steep as long as the loan is repaid on time. Bank loans usually are longer term and often last a year or more. They have multi-year terms that come along with them, as they are for much larger sums of money.
The Purpose of the Loan
Bank loans may be restricted to serve a certain purpose. For example, a mortgage is for paying off a property. The bank may want to know what you are using your loan for. Payday lenders, meanwhile, are much more flexible on this front. You may use the money for whatever you need it for at that particular time. Whether you need to pay a medical bill, credit card payment, or treat your spouse on their birthday, a payday loan allows you to freely spend the money as you wish, and pay it back when it is convenient for you. The only restriction is the amount of money you can borrow.
Banks and payday loan companies may have different qualifications for obtaining a loan. A bank will usually perform a credit check and require a co-signer or collateral for a loan. Payday loan companies may be more flexible, and some do not perform a credit check at all. They may instead take other factors into account and check that you are in employment with sufficient income to pay back the loan at the end of the lending period.
Whether you choose a personal loan or a pay day loan will depend on how quickly you need the money, when you are able to pay it back and what you need them money for.
Join our newsletter
Subscribe to get the latest "Engineer Your Finances" content via email.