Quick Payday Loans vs.
Traditional Loans
Many people are beginning to hear about quick payday loans.
These could be very good options for you if you are in dire
need of cash. Before you apply for one though, you should want
to know what makes it different from traditional short or long
term loans that you apply for in banks and lending
companies.
Requirements
Traditional loans usually have very stiff requirements. You
may have to furnish several documents and personal information
including a good credit score. Some banks ask for collateral if
you are going to borrow a large sum. Lenders of payday loans
have varying requirements. One thing is constant though. Most
payday loan providers do not ask for extensive documentation.
Minimum requirements simply include citizenship, employment,
legal age and bank account.
Purpose
Both payday loans and traditional loans can be used for a
variety of purposes. Some financial experts stress though that
payday loans should ideally be used for emergency purposes
only. Examples of emergency expenses are medical bills that
don’t quite fit into the weekly budget. Payday loans are
recommended only for emergency use because of the nature of its
payment terms.
Application
Traditional loans often have to be applied for in physical
offices. You would often have to hand carry your documents and
sit in for an interview. After this initial meeting, a lender
would have to evaluate your documents further before a decision
is made. Approval time can extend for days.
Quick payday loans can be applied for entirely online.
Application processes can differ but some lenders simply ask
applicants to fill up forms. Borrowers are sometimes contacted
by the lenders for a phone interview. Approval can be given in
as short as one hour to one day and the cash can be deposited
directly to your bank account.
Loan Amount
Loan amounts for payday loans are often small compared to
traditional loans. This is because payday loans are really just
meant to provide you with small financial assistance until the
next payday. If you feel that you need a bigger amount of cash
for a longer period of time, then applying for a traditional
loan is a better choice for you.
Interest Rate
Interest rates for payday loans are usually higher than
traditional loans. Although you might still be able to find
rates below 10% many other lenders have rates above that. This
is considered reasonable. Since there are no guarantees or
collateral asked from borrowers, lenders impose high interest
rates instead.
Payment
Payday loans have to be paid on the next payday. This means
that lenders can come knocking on your payroll or bank account
in as short as seven days. This is why they should only be
applied for during emergencies. Applying for them too often
could lead to a financial disaster. Traditional loans on the
other hand typically have longer payment periods.
Quick payday loans and traditional loans are not the same.
Although they both offer financial relief or assistance, you
have to evaluate your specific needs and situation first to
determine which is a better option for you.
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