What’s the Difference Between Payday Loans and Personal Loans?

If you need to borrow money, you may want to research your options before signing an agreement in order to make sure you receive the best form of credit available to you. Payday loans and personal loans are two common ways to finance money quickly, but there are important differences to note between the two forms of credit. Read on to learn more about payday and personal loans.

 

What Is a Payday Loan?

A payday loan is short-term form of credit designed to help borrowers pay for essential bills and expenses between paychecks. They’re typically issued for smaller dollar amounts than other types of financing, such as personal loans or lines of credit.

 

How Long Do I Have to Repay a Payday Loan? 

Payday loans are named for their repayment period; typically, they’re repaid in full within a few weeks or less, usually by the next payday. Due to their smaller dollar amounts, payday loans generally have the shortest repayment period when compared to other types of loans.

 

What Is a Personal Loan?

 A personal loan is another name for an installment loan, or a type of financing that is issued out in one lump sum and is repaid in installments over time. Personal loan amounts can vary from a few hundred dollars to a few thousand dollars or more, depending on the lender, borrower’s credit history and location. Due to their larger loan amounts, personal loans can be used for many purposes, such as moving expenses, home improvement or debt consolidation.

 

How Long Do I Have to Repay a Personal Loan?

Most personal loans are considered short-term loans, which means they’re typically repaid within a range of a few months to a few years, depending on the specific loan agreement. However, an average repayment period for personal loans is longer than a typical payday loan term.

 

What’s the Difference Between a Payday Loan and a Personal Loan?

The main differences between payday loans and personal loans are the repayment periods and loan amounts. Normally, payday loans are issued for smaller dollar amounts than personal loans and are repaid within a few weeks.

Personal loans, on the other hand, can be issued for larger amounts of money than payday loans, depending on the borrower, location and lender. The loan repayment term for a personal or installment loan is also typically longer, which can range from a few months to a few years.

 

How Do I Qualify for a Payday Loan or Personal Loan?

While loan qualifications can vary by location, lender and other factors, potential borrowers generally need to meet the following minimum application criteria for a personal loan or payday loan:

  • At least 18 years of age
  • A U.S. citizen or permanent resident
  • A steady, verifiable income source
  • Active checking account

 

 

The information in this article is provided for educational and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial, legal or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.

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Bonnie is a Chicago transplant who's committed to seeing the world on a dime. As an avid news junkie with a fascination with finance, she loves to help others do more with less.

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