Your dog just broke his leg and payday is a week away. You've been ill and are a couple hundred bucks short on your rent. These things happen, but how do you make ends meet? Payday loans are widely available even if your credit isn't in good shape. If you have good credit, you may qualify for a personal loan from your bank or an online lender. Here's what you need to know about the differences between personal loans vs. payday loans.
Compare Personal Loans vs. Payday Loans
- Personal loans don't cost as much as payday loans, but generally require good credit. If you have good credit, start your loan search by comparing personal loan quotes and applying. If you're turned down and cannot get the funds you need from other sources, a payday loan might be your only solution.
- Payday loans are available to borrowers with little credit, no credit and bad credit. Payday loans are usually granted quickly and without a ton of documentation required. You can expect to provide proof of identity and income. Some lenders require a checking account. If you're facing a financial emergency and need money fast and for a very short time, a payday loan is a convenient but costly option.
- Personal loans can be repaid over a longer term with lower payments. Personal loans typically carry lower interest rates, fewer fees and can be repaid over a period of months or years depending on how much you borrow and your lender's policies.
- Payday loans are short-term loans designed to be repaid quickly – within days or weeks. While a payday loan can bridge the gap between your need for immediate cash and your next payday, the Federal Trade Commission advises that payday loans are not intended to be used repeatedly to cover expenses that exceed your income.
- Personal loans might offer higher loan limits than payday loans. Your good credit can help you save on loan rates and costs by qualifying for a personal loan. Personal loans may provide higher loan limits based on your credit scores and income.
Payday loans carry high rates and costs that can make them difficult to repay. You can potentially dig yourself deeper into debt due to high fees and costs charged for payday loans, while a personal loan can help you pay off debt or meet expenses without taking out additional loans.
Find Your Best Personal Loan: Shop and Compare Lenders, Loan Rates and Terms
The key to getting your best deal on a personal loan is to shop and compare personal loans, lenders and loan terms. You can start by contacting your bank or credit union, but don't agree to a loan until you've shopped and compared personal loans offered by several lenders. Request quotes for the same loan amount to provide a basis for comparing loan offers.
- Check the annual percentage rate (APR) for each loan offer. This is the annual cost of a loan expressed as an annual percentage of the loan amount. The higher the APR, the more costly the loan.
- When comparing loan quotes, make notes of questions and concerns. Call each lender to discuss these matters. You can't make an accurate comparison of loan offers without fully understanding each loan offer.
- If you're caught up in taking out payday loans and rolling them over before you can pay them off, please consider applying for a personal loan to pay off your payday loans for good.
Using a personal loan to pay off payday loans can be a first step toward improving your cash flow and credit standing. If you can't qualify for a personal loan, try asking a family member to co-sign for a small personal loan. This can help you establish credit with a personal loan lender, but it also involves risks to personal relationships if you cannot repay a co-signed loan.