Difference between Short-Term Loans (Payday Loans) and Traditional Loans

Nowadays financial institutions have a wide range of services and options. One should study different offers to find the right one that meets your needs. Depending on your requirements and circumstances, you can choose either a short-term loan or a traditional one.

Advantages of Short-Term Loans

What is a payday loan? It is a short-term, unsecured loan where "unsecured" means that no collateralis needed to obtain it. The procedure of getting this kind of loan is very simple. You need to fill in the application form either online or in store. Then, in a short period of time, you will receive the amount of money you asked for on your bank account. The lenders are willing to give a loan even to people with a bad credit. What is more, the list of requirements the borrower should meet is rather short: you have to be over 18 y.o. (a few states require you to be 21), have a US passport, valid e-mail, and a phone number. The most important thing that refers to payday loans is to choose established and stable company with the good reputation to be sure and secure about your finances.

payday income

Traditional and Payday Loans: Main Differences

Payday loans work perfectly if you need a small amount of money and you are able to pay it back in a short term. However, if your needs are different, consider the other options, for example, traditional loans. Of course, the majority of people knows how a traditional bank loan works. It is possible to get the larger amount of money for a longer term. If the most common payday loan size is 500$ for a 2-week term, an ordinary bank loan is much bigger and lasts for years. Although recently several banks across the USA have initiated giving small loans to their clients similarly to payday lenders.

Another difference is the amount of the interest rate. Payday loans' rate is much higher in comparison with traditional ones. However, thanks to the short term of a loan, it does not seem crucial. What is more, the chance of being rejected by a payday lender is minimal, while for a traditional loan your credit history should be almost spotless. In addition, payday loans require minimal paperwork in comparison with traditional ones.

Finally, payday loans are suitable for small personal needs, for example, for unexpected expenses. A bank loan is a common way of getting money for business and it is good for financing investment in fixed assets.

To sum up, two major differences between payday loans and traditional loans are terms and interest rate. Payday loans are suitable for those who look for the small amount of money for a short term, while traditional bank loans are used by those who need lower interest rate, bigger money sum and longer terms. The choice of the option is crucial because it determines your future financial stability and success.