Which is Better for First Time Loan Borrowers Personal Loan or Payday Loan? This post is a comprehensive guide on the right loan type for first time loan borrowers.
If you are planning to apply for a loan for the first time, and wondering if you should apply for a Personal Loan or a Payday Loan, this post will guide you on selecting the right loan type. Many first time borrowers go through this dilemma, and this happens due to lack of clarity about the features of the two loan types, and their differences.
In this post, I will get you familiar with some of the important differences between a Personal Loan, and a Payday Loan. As you read this post till the end, you will gain good clarity about the two loan types, and you should be able to conveniently choose between the two based on your requirements. Further, I will try to address some of the questions that may cross your mind relating to loan selection.
A Personal loan is a loan you can borrow from an online lender, credit union, or bank without needing to put in line any collateral. The loan type is ideal for consolidating high-interest debt, a large purchase, or cover other emergency expenses. The interest rates of these loans are usually lower than credit cards.
Borrowers usually need a credit score of 610 to 640 to qualify for a personal loan, and if you want to get a personal loan at the lowest interest rates, you need to have a credit score of a minimum of 690.
Next, it’s important to understand what a Payday loan is. A Payday loan doesn’t require any collateral, and is available at high interest rates for a short-term. Unlike a Personal loan, a Payday loan doesn’t usually require credit score requirements for borrowers to qualify for a loan. However, borrowers will need to submit their income proof, and other documents as specified by lenders.
So far you have seen how the two loan types work. As far as choosing between the two loan types goes, it has to do a lot with your credit score, and income. If you have followed the article well so far, you must have certainly noticed that a Payday loan comes with higher interest rates than a Personal loan, and why would you like to pay higher interest rates as long as you have a good credit score.
A Payday loan can be a good option for those who have a bad credit score, and have difficulty in getting a personal loan. Applying for a Payday loan can be the best option if you have a bad credit score, and at the same time, need an emergency loan. Besides, borrowers have a chance of falling into a repeated debt cycle because of the high interest rates when they opt for Payday loans.
Another thing that is worth-mentioning here is that Payday loan lenders have a bad reputation of exploiting borrowers who are in a financially vulnerable condition, and furthermore, Payday lenders use aggressive ways to collect their loan amount from the borrowers.
On the contrary, a Personal loan comes with much lower APR, and no hidden costs. Personal loan lenders are comparatively more reliable than Payday lenders. Besides, the Personal loan application process is pretty easy, and you can easily find many reliable online Personal loan lenders to select.
No matter if you are applying for a Personal loan or a Payday loan, you have to plan it really well. It starts right from determining the amount of loan that you want to apply for. The loan amount will certainly depend on your requirement. However, with that you also need to plan on how it will be convenient for you to repay the loan amount.
After you sort this out, you are good to go with selecting a suitable lender. I know it’s not easy to find a lender, and this will certainly need you to compare different lenders. Few things to bear in mind while comparing are APR, eligibility requirements, loan terms, and repayment options.
Next up, you will need to fill up the lender’s loan form, and submit it along with the required documents. If your loan application gets approved, the lender will contact you. After that you will need to complete the final step by signing the loan agreement paper, and this is a point where you need to be extra careful.
You must read the loan agreement very carefully, and if you find anything suspicious, you can stop right there, ask for clarifications from the lender, and you may even reject the loan proposal if needed. There are many lenders around to choose from, and hence, you must never rush in selecting a lender.
First time borrowers are a bit confused about Personal loan, and Payday loan. I am sure that reading this post has helped you break out of this confusion. I have tried my best to provide you with a clear picture of the two loan types, and as you have seen in the post, selecting between the two loan types actually depends on the borrowers’ credit score, income, and requirements.
If you are a new borrower, and you have a good credit score, it’s always wise to opt for a Personal loan rather than a Payday loan. After all, a Payday loan will cost more than a Personal loan in terms of interest rates. I will recommend staying away from Payday loans if you are a first time borrower unless you are in a situation, and need to get a loan sanctioned in no time.
Apart from this, I have explained how to plan for a loan application, and if you follow it well, you will have a smooth experience right from the day you receive the loan amount till the time you repay your loan. Just to remind you once again, you must always read the loan agreement carefully before entering it, and also remember there are many lenders around to choose from. Hence, never hesitate to reject a loan if you find something suspicious about it.
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