Short Term vs Payday Loan
If you urgently need cash for emergency needs, there’s are 2 options: personal short-term loans and payday loans. But before you apply, you should know the differences between these two financial services.
What is a payday loan?
A payday loan is a short-term loan that can help you cover immediate cash needs until you get your next paycheck (on average 2 weeks), and is best suited to individuals who need money right away. If you took out this type of loan, you would probably have the funds in your bank account the next day or even the same day, and you don’t have to have a good credit score to be eligible for one. In fact, you can take out a payday loan with no safety, no paperwork, no collateral and no guarantors, making it the only option for some consumers who need to borrow cash right away.
Are short-term loans the same as payday loans?
Generally, payday loans are for smaller amounts of money and shorter periods of time than regular short-term loans. Short-term loans, on the other hand, tend to offer larger amounts of money than a payday loan and may lend you funds for up to 1 year.
What is the main difference between short-term loans and payday loans?
The key difference between regular short-term loans and payday loans is the number of repayments you make. You usually repay a payday loan within one month in one lump payment. With a short-term loan, you could repay your loan from 2 to 12 months.
Are payday loans always more expensive?
Not always. In fact, since payday loans are shorter, they might actually be a little bit cheaper overall as you have less time to accumulate interest. It all depends on your annual percentage rate.
Overall, both types of loans have similar interest rates. The difference will be the period you choose to borrow funds for.
Is the application process different?
Applying for a payday loan and short-term loan is a similar process. You will need to provide the same information. The process usually includes the following steps:
- Check your credit score;
- Make sure you comply with the borrower requirements (be at least 18 years, have a steady income and a bank account in your name);
- Decide how much you would like to borrow and for how long;
- Use our referral platform to apply for a loan;
- Get matched with the best lender;
- Read the terms of the loan offer thoroughly to make sure you can comfortably afford it;
- Accept or decline the loan offer.
How do I know what is right for me?
- Payday loan – if you only need a small amount of cash and can definitely repay it + interest after your next payday, this could be a suitable option;
- Short-term loan – if you think it will take you a bit longer to repay your loan (such as a few months or up to 1 year), you should choose a short-term loan instead. This option is also the best one if you have a low credit score.
Always start off by checking your credit report (you can order it online from annualcreditreport.com or call 1-877-322-8228) and your eligibility, as this will give you a better understading of which loan type is right for you.