When you think to borrow cash for a short period of time, you will find that there are multiple options to choose from a huge number of lenders. Hence, shorting out your options is very important to find the best loan for you, especially if you are not sure whether to go for short term loans or a payday loan.
Hence, to have a clear understanding of differences about these types of loans will make it simpler for you to opt for the right loan offer for you.
To provide you with some insights, we have discussed the differences between a short term loan and a payday loan.
A payday loan is a financial product which enables you to borrow money to overcome any financial emergency until your payday. They are very short loans taken out to overcome unanticipated expenses such as overdue bill payment, car repairing, etc.
The following are the drawbacks associated with payday loans:
- Generally, people take this type of loan in an emergency and you might not get the most suitable loan for your need.
- It needs to be repaid in full after a month.
- If any further financial emergency spring up then it can make your repayments difficult.
- With a very high-interest rate, it means that failure to repay will be very expensive
How Short Term Loan is Different?
- Short duration loans are different because they are taken for a longer period for 2-6 months.
- They also have a high rate of interest and will be expensive to repay depending on the amount and duration of repay.
- You might get a lower interest rate but this is only because it is for a long period which means APR won’t look grave.
- Since both types of loans are suitable for borrowers with bad credit score, still you won’t be able to get a lower interest rate as available in the case of standard loans.
What about the Application Process? Same or Different?
Applying for a short term loan is not different from a payday loan because both are loan products which need the same information. As you need money urgently to overcome your emergency, you should always do proper research and take your time in choosing a loan. This will make sure that you are able to repay the loan in full on time.
Is Payday Loan More Costly?
Not actually! It can be a little cheaper due to short duration as you have less time to repay and interest accrued will be less. It all depends on the APR. Overall, you can see that both loans will have an almost similar rate of interest. The only difference will be the amount of time you choose to borrow the money.
What about Repayments? Is there any difference?
- Your repayment depends on the amount you borrow and the duration you are borrowing for. Short term loans have generally a longer repayments schedule than payday loans.
In the case of a short term loan, you have to repay every month while payday loans have to be repaid on a fixed day, usually just after you received your paycheck.
- You might have the option to pay your payday loans any time depending on your loan agreement with your lenders. In the case of short term loans, this flexibility is not available.
Which One to Choose?
In general, you can decide upon your loan option based on how much you want to take and for how long.
- Payday Loans: If you are in need of small amount and can definitely repay the amount on or after your paycheck day, this could be a feasible option for you.
- Short Term Loans: On the other hand, if you think it will take longer for you to repay such as a few months, in this situation you should go for a short term loan.
Overall, we can conclude that a short term loan is a much better and safer option than a payday loan because it gives you an opportunity to borrow for a long duration without any obligation to pay back immediately whatever you owe to your lenders. There is very less risk associated and you have the choice to borrow slightly more amount than needed for any additional expenses.
Always start by checking your credit record and your eligibility as this will give a better understanding about which loan option is good for you. Also, do proper research before settling for one. You should apply to many lenders and ask them for a quote. Compare the features provided by all lenders and go for the one which suits you best.
As with all loans, it is very important to borrow responsibly. This means knowing your ability to repay the loan and having a suitable plan to help you make repayment on time.