Should You Get A Payday Loan Or A Personal Loan?

While it may not seem like a huge deal, making the right pick between a payday and a personal loan can greatly impact your financial future. Simply put, these two types of popular loans are nothing alike, other than the fact that they can give you quick cash.

What’s different between payday and personal loans, and which is the best fit for your unique needs? Let’s break that down now.

Affordability

Before we get into how much money you can get from a payday or a personal loan, we must mention the most essential aspect of such financing: The cost. Why? Because if the loan is too expensive, you’ll regret it later on. And depending on how expensive it is, that loan could put you in a bigger financial hole than you ever imagined.

To put it bluntly, payday loans can be so expensive that they sit in the predatory department. Need proof? Look no further than Texas, the state with the most expensive payday loans on average. In Texas, you could be looking at a 664 percent interest rate with a payday loan, which is a cost most people cannot afford.

Triple-digit APRs make payday loans unaffordable for the vast majority of borrowers. That’s why personal loans are a much better choice. With APRs between 5-35%, depending on your credit, you can get a much more manageable loan by taking the personal instead of the payday route.

Funding

The purpose of the loan will determine whether a payday or personal loan best fits your needs. If you don’t need more than $500, a payday loan may suffice since that is typically the max you can borrow.

If you need to borrow cash to pay for a wedding, home improvement, vacation, etc., a personal loan is the obvious choice with funding in the $1,000 to $100,000 range.

Time

Do you want to borrow money without worrying about paying it back instantly? A payday loan may not be your best bet since lenders in this arena expect repayment within two weeks (aka your next paycheck).

On the other hand, personal loans give you more breathing room with repayment, as terms can range from one to seven years. Instead of withdrawing funds right from your paycheck like a payday lender will do, personal loan lenders give you the option of using autopay or other less stressful avenues. Add in the fact that personal loans have fixed interest rates that lead to steady payments each month, and you could easily say that taking this route is more ideal in terms of repayment.

Credit

One area where some payday loans beat personal loans is credit. In other words, you can get a payday loan with bad credit since most lenders here will not check your score. While some personal loan lenders do not factor in credit scores, others will due to the higher loan amounts.

As for building credit with the loan, payday lenders won’t help as they do not report made payments and only disclose missed payments. Personal loan lenders can help you build credit since they report timely payments.