|Payday Loan vs Short Term Loan|
The Difference Between a Payday Loan and Short Term Loan
If you need a smaller sized loan fast, you may be torn between the payday loans that you see advertised frequently and a regular short term loan. It is important to understand the differences to ensure that you make the best choice for your situation.
First, it is important to evaluate the usage of each loan. A payday loan is most likely to be useful in an emergency – you need a small amount of money fast and cannot wait for approval. As the name implies, it would be a small amount of money, not more than you make in an average pay check. On the other hand, a short term loan is generally for larger expenses that you can still pay off quickly, such as a home repair job or paying for a wedding.
The basics of short term loans
Short term loans (example : ThinkCash Short Term Loans) are generally unsecured, meaning that you do not have to provide a form of collateral to be approved. The repayment varies between lenders and loan types, but on average, most short term loans have to be repaid within 5 to 15 years. The actual amount that you can get approved for also varies, but generally these loans are for under $50,000.
The main disadvantage to short term loans is that they are more expensive than other types of loans. They tend to have a higher interest rate to make up for the lack of collateral. The better your credit rating, the more likely you will obtain a better rate, but you will still want to shop around from lender to lender for your best rate. If you have bad credit, you may still qualify for short term loans, but be advised that you will not be able to take out as much money or qualify for the best financial terms.
Understanding payday loans
Payday loans (example : PayDayOne) are well advertised in the media, and they may appear to offer many benefits. While they may seem to be the answer for someone who needs money now, you have to be careful in ascertaining whether loan is worth the cost. What many of these lenders do not bother listing in their advertisements is the cost of the loan, the difficult loan term, and the exorbitant annual percentage rates.
A payday loan requires the borrower to write a postdated check. You generally will need to provide a pay stub from your job to qualify. The lender will then give you cash, but it will be for less than the amount of the check. The difference is the lender's profit. On average, payday loan lenders will charge $15 to $50 for every $90 borrowed. This money only covers the term of the loan, which is generally about a month. If you do not pay the money back by that time, you could be subject to even more finance charges.
The problem comes if you do not have the funds in your checking account when the time arrives for the lending institution to cash your postdated check. Some consumers will then fall into a cycle of taking out a new loan to cover the old one, acquiring new fees each time. If they cannot pay back the loan quickly, they can quickly end up with a huge amount of debt and no way to pay it.
Generally, if you have the option, a short-term loan is financially better than a payday loan. However, if you need the money quickly or for an emergency, then a payday loan can suit your needs; you will simply need to ensure that you have sufficient funds in your checking account to cover your postdated check. The two options meet different needs and financial circumstances, but when you understand the fundamentals, you can make a great choice for yourself that will not impede your long-term credit score.
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