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

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.

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