Shortage of funds is common. The inability to meet the requirements often drives the person to either borrow from relatives or at the doors of a bank. Estimating the divergent requirements, banks offer different types of loans suiting one’s needs. The two completely diverse loans and the topic of interest in this article are personal and payday loans. While personal loans serve a longer and bigger purpose, payday loans are provided to meet monthly needs. Regardless of the loan type, only apply for personal loan after comparing different offered personal loan interest rates.
Personal Loan
These are the flexible loan options for long or short-term needs, depending on your requirements. With no usage restrictions, the loans are offered without any collateral or security. The usage may vary, like for the purpose of planning a vacation or dream wedding, paying back debts or medical bills, or supporting a child’s education. The eligibility criteria require cross-checking of income, credit history, and other factors. The personal loans are provided at specific personal loan interest rates. The tenure and EMIs are informed to the individuals when they apply for personal loan.
Payday Loan
This loan is also referred to as ‘advance cash’ as it is an advance payment to be delivered on monthly payment income. These are provided for the short term to meet the monthly expenses. The loans are provided for the tenure of two to four weeks. The loan amount strictly depends on one’s income. These loans are associated with high repayment risk and hence come along with a very high interest rate.
Difference Between Personal and Payday Loans
There are multiple aspects of differences between personal and payday loans:
Loan amount: Personal loans are available with larger loan amounts, while payday loans are available to provide smaller loan amounts. The generalized range for payday loans is between INR 50 thousand to 2 lakhs, while the generalized range for personal loans is around 40 lakhs.
Tenure: Generally, the tenure for a personal loan is 6 to 96 months, and for a payday loan is two to four weeks.
Documentation: Payday loans require basic documentation like identity and address proof and any other depending on the bank’s needs. The document of prime importance here is the salary slip. Personal loans require applicants to submit KYC documents, income evidence, bank statements, and other documents to verify their eligibility for a loan. The approval is not yet guaranteed on submission of documents when the applicants apply for personal loan.
Credit score: It does not play an important role in getting payday loans but is immensely important in personal loans. Since payday loans do not involve credit score check through hard inquiry, the application does not affect the credit score.
Choosing the Right Short-Term Financing
The applicant needs to consider the following factors before making the decision:
- Requirements: Payday loans are designed to meet small needs or urgent requirements. For instance, car repair, mortgage or others. Personal loans are suitable for larger needs. For instance, sponsoring education or marriage.
- Check your credit score: Payday loan does not rely upon credit score but income amount. Personal loans consider multiple factors.
- Requirement time limit: Payday loans are approved instantly with quick disbursal of funds. Personal loans take a few days of time for document verification and credit history inquiry.
- Cost of loan: The difference in interest rates and fees is huge. Estimate the reasonability in expenditure before choosing the loan. Apply for personal loan only after considering personal loan interest rates and associated EMI with respect to the selected tenure.
- Tenure: The tenure for payday loans is lower, ranging between two to four weeks, while the tenure for personal loans is longer. Payday loans are to be paid through the next monthly income, while personal loans are to be paid monthly. Understand the long or short-term associations depending on the type of loan.
Frequently Asked Questions
Q1. Is a payday loan secured or unsecured?
Ans. A payday loan is an unsecured loan, which means it does not require any collateral.
Q2. Which type of interest rate is offered on payday loans?
Ans. A payday loan is offered at a fixed interest rate.
Q3. What documents are required for a personal loan?
Ans. The documents required for a personal loan are proof of identity, address, income, and work experience.
