Payday Loans vs. Personal Loans: Which One is Right for you?

Payday loans and personal loans are both smart choices for cash flow problems, and they both require no collateral, making them a good choice for many consumers.

There are plenty of reasons we may all need extra cash from time to time, yet deciding which sources to obtain the cash from may be confusing. If you need money to pay off debts, purchase a new car or pay your rent, where do you turn? This all depends on a few different factors.

Ask yourself the following questions before deciding whether a personal loan or a payday loan is right for you:

1. How quickly do I need this money? If you are in an emergency situation and need cash immediately to pay for expenses, such as your rent or your car payment, then a payday loan is probably a better choice over a personal loan. Many payday loan companies can process your application in moments and transfer the money into your bank account within 24 hours. Personal loans, on the other hand, generally require a more extensive loan application process and review, so using a personal loan for an emergency situation probably isn’t your best bet.

1. Will this loan be long-term? Payday loans differ from personal loans because they are short-term loans, while personal loans are generally long-term loans. If you need a small loan until your next paycheck arrives, then a payday loan makes more sense than a personal loan. If you need a long-term loan for a large purchase, such as the purchase of a car, then a personal loan is probably a better fit.

1. How much money do I need? Payday loans are generally small, as they average between $100 and $1,500. Personal loans, on the other hand, are typically much larger, and as such, are repaid over a longer period of time. If you need to get your car repaired or your electric bill paid, the small expense is better suited to a payday loan than a personal loan. If, however, you need a large home repair, for example, a personal loan is a better choice because you can pay off the large amount over a longer period of time.

1. How is my credit rating? Payday loans have become popular due, in part, to the fact that a credit check is not required. As such, the fees and APR for payday loans are generally much higher than personal loans. Personal loans, on the other hand, require a strong credit rating. Given today’s tough economy, however, banks are being much pickier when it comes to accepting personal loans. Therefore, many consumers that once were able to easily secure personal loans are now being rejected.

1. How much time do I have? Payday loans are popular because they do not require a long application process. The application process for a personal loan, however, may take several days as the loan officer prepares the application and requests documentation. It can then take several more days or even weeks while the loan goes through the approval process. Therefore, many consumers in search of quick cash turn to payday loans to solve their cash flow problems.