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Payday Loans vs. Bank Loans: What’s the Difference?

You might think that a bank is the best place to go when you need a loan, but you could be mistaken. The fact is that there are lots of alternative borrowing options these days, and it is wise to explore them. Payday loans have gained a reputation for being very helpful, especially to those with poor credit. If you need to borrow money now, you should know the difference between these two options. This article will provide you with all the information necessary to make the proper decision.

Private Lenders vs. Banks

One of the most obvious differences between payday loans and bank loans is that the former is given out by private lenders. Payday loans are not available through financial institutions like banks and credit unions, but rather private lending companies. Many of these businesses are based online, though some of them have physical locations throughout the UK.

Regulations

Some people are apprehensive about obtaining a payday loan because they aren’t regulated in the same way as bank loans. While it is true that these loans are not backed by the government, there are still strict regulations in place for them. Recent legislation has made it so that payday loan borrowers have better protection than ever before. This means that you can rest easy without fear of any negative consequences.

Borrowing Amounts

It can be fairly difficult to get a bank loan for just a couple hundred pounds, but with payday loans you borrow as little as £100 or even less. If you just need to borrow a small amount, a payday loan is the way to go. Banks and credit unions typically only give out loans of at least a thousand pounds.

Loan Terms

Because banks typically only give out larger amounts, the terms tend to be longer than with payday loans. When you have a longer term, you pay more interest. If you want to minimize the total amount you pay with your loan, a shorter term is almost always ideal. You can, however, still get extended terms with private lenders. Sometimes payday loans can be paid back over the course of up to a full year. The average pay back period is around two weeks. This is so the borrower can pay back the money they borrow when they receive their next paycheque from their employer.

Eligibility

Lots of people who apply for bank loans end up getting rejected for one reason or another, though it usually has to do with their credit. The fact is that most banks are very uncomfortable lending out money to people with low credit scores. Private lenders that give out payday loans don’t care nearly as much about what your credit is like.

While there are still eligibility requirements for payday loans, they aren’t nearly as stringent as with bank loans. This means that you will most likely have an easier time getting a payday loan, which is always a good thing. Make sure that you take a close look at the requirements of the lender before you apply though. You definitely don’t want to waste any of your time if you can help it.

Convenience

There is absolutely no question that payday loans offer a higher level of convenience than most bank loans. The entire process for obtaining these loans is streamlined for maximum efficiency. After all, they are called same day loans for a reason. You will be able to apply for a payday loan online, and it only takes several minutes or so. Most bank loan applications tend to take significantly longer.

Dispersal of Funds

Even those who get approved for a bank loan (which is challenging enough) can wait up to two or three weeks before they get their money. The sad truth is that banks work very slowly, which can be particularly frustrating if you are in a hurry to get your funds.

Payday loans get money to approved applicants very quickly. In fact, you can probably expect to receive the money in your account just a few hours after signing and submitting the loan agreement to the lender. This is truly great if you have an important expense that you absolutely cannot wait to cover.

It is important for you to look over the many differences between payday loans and bank loans before deciding which to apply for. Many people are starting to gravitate towards loans from private lenders because of all the benefits they offer. If you are having difficulty getting a bank loan due to your credit, this option could work out well for you. While there is always a chance that you might not get approved for a payday loan, you should still fill out an application. You will most likely be glad you took the time to do this.

When Should I Apply for a Payday Loan?

There are certain circumstances where applying for a payday loan can be a very good idea. In this article we will help you figure out if this is the right option for you. While not everyone should necessarily get this type of loan, it can be helpful to many people. Payday loans have steadily risen in popular over the last couple decades. It is an option that you should at least look into before deciding what to do.

When Your Credit is Bad

If you are still working on your credit but have a low score, a payday loan can offer hope when you need to borrow money. A background check might be necessary when applying for this type of loan, but that doesn’t mean you need a high score. Lots of private lenders are giving out payday loans to people with poor credit. There is no question that these lenders have laxer credit requirements than banks or even credit unions.

You Can’t Wait

When you are in a situation where you simply cannot afford to wait a long time for funds, payday loans can be helpful. Approved persons can usually get the funds they need within 24 hours of submitting an application. This is because the whole process is incredibly efficient and done entirely online. Websites such as Omacl.co.uk are a good example of this. Traditional loans obtained from a bank or other financial institutions don’t work nearly as quickly. This is the best borrowing solution when you are in desperate need of cash.

You Don’t Need the Money

Most banks won’t give you a loan unless they determine that you really need the money. If you just want money for a holiday or something else, you can turn to payday loans. These lenders won’t ask you what you intend to use the loan for, so there aren’t the same limitations as with a bank. You will be able to get money simply because you want it, even if there isn’t a pressing need. This makes it much easier to get money for absolutely anything.

Your Falling Behind with Your Bills

If you have started falling behind with your mortgage or even utility bills, getting a payday loan can be a good idea. This type of loan can give you the ability to catch up on your bills before your credit is negatively affected. Lots of people apply for payday loans for this precise reason. It is much better to get a loan for the money rather than let one of your bills fall to collection. When this happens, it is too late to do anything about it.

Your Bank Won’t Give you a Loan

Sometimes even your own bank can help you out with a loan, and it’s something many people have experienced. If this is the case, you should try going online to apply with a private lender. While you might not have a pre-existing relationship with the private lender, they can still help you. One of the most common reasons that people get rejected for loans by their own banks is because of inadequate credit. When your bank or credit union cannot help you out, you should consider this alternative.

 You Are Self Employed

It can be challenging to obtain a bank loan if you are self-employed, but this is not the case with payday loans. A majority of private lenders that give out payday loans won’t care if you are self employed, provided your income is adequate. You will still need to provide the lender with proof of your income during the application phase. If the lender decides that you make enough to pay back the loan promptly, you will probably be approved.

You Want to Consolidate Your Debt

A debt consolidation loan can be incredibly helpful with enabling you to regain your financial freedom. If you want to clear your credit card balance once and for all, obtaining a payday loan can be very useful. This is a form of debt consolidation that can work well for many people. Just make sure that you owe a significant amount. If you only owe £200 or £300 pounds to a credit, you are probably better off just paying it back without financial assistance.

There are many situations in which getting a payday loan is the right decision. You should take the time to consider all of these things before deciding what to do. The fact is that payday loans are a far better than bank loans for a plethora of reasons. They can offer you salvation when you are in a bad place financially and require swift assistance. It won’t take long to complete an application for this type of loan. In fact, everything about these loans is incredibly convenient and designed to get you cash as quickly as possible.