Applying for a loan can simplify your payments and help you adequately deal with unforeseen expenditures. The quick cash made available by the bank / financial institution not only enables you to plan your finances efficiently but also helps you to keep your hard earned savings safe.
With the advent of numerous online loan offerings by various banks / non-banking financial institutions (NBFC), it is become extremely quick, easy and hassle free to apply for a loan. With NBFCs like Finserv Markets, your personal loan application can be approved within just 3 minutes and the loan amount can be credited to your bank account within 24 hours!
It may be represented in outline here that there are a variety of loans that various banking and non-banking financial institutions offer. Two of the most commonly applied loans are payday loans and personal loans. While the two might seem similar, there is a stark difference between them.
In this article, we tell you some key differences between personal loans, as well as payday loans, that would help you make a better choice.
But first, let us understand what these two terms actually mean.
A personal loan is an unsecured loan given by a bank or a financial institution without assigning any avenue for which the money can be used. Since the loan is offered without offering any security / collateral, it is usually offered at a higher interest rate than secured loans. You can use your personal loan to pay for your unexpected repairs or renovation, child’s education, starting a new venture and many more.
Payday loans are also called check advance loans or cash advance loans. These are nothing but short term borrowings that are lent to a person depending on his income and credit profile. The principal of the loan amount is usually a part or portion of the borrower’s next salary or paycheck.
Difference Between Personal Loan and Payday Loan
Now that you are clear about the two types of loans, let us now know about certain key differences between the two.
Amount of borrowing
Usually, a personal loan lets you borrow a bigger sum of money as compared to payday loans. In fact, payday loans do not exceed your salary amount and as mentioned before, the principal sum is itself a portion of the borrower’s paycheck.
Duration of Loan
Another difference between personal and payday loans is the duration for which such a loan is offered. Personal loans can continue for a long period, right from a few months to several years. However, payday loans are offered for a much shorter duration. The period of borrowing is often between two to four weeks or the time in between two paychecks.
Speaking from the perspective of eligibility requirements, personal loans have a strict eligibility criterion. In fact, a potential borrower has to submit several documents such as PAN, bank details, etc. before he/she can apply for the same. On the other hand, payday loans do not require much documentation. The only criteria to apply for a payday loan is that the borrower must have a regular source of income that can suffice the repayment of the amount borrowed.
Cost of Credit
Even though personal loans charge a high rate of interest from the borrower, it is still quite low as compared to what is charged by applying for a payday loan. Since the purpose of taking a payday loan is to avail quick cash, more so instantaneously, the interest rate can be quite much when seen from the perspective of other debt instruments.
So, this was all about the vital differences between personal loans and payday loans. Most borrowers are often confused between the two terminologies. However, one should keep in mind that both type of loans are offered for different financial objectives and as such, must be chosen wisely.
If you are dealing with a financial crunch right now, then a personal loan from Finserv Markets is just the right product. What’s more? The entire process is online, quick, comes with a host of additional benefits and can be processed right from the comfort of your home! Apply Now and solve your financial problems, today!
“Finserv Markets, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!”