If you need funds, you may be wondering how personal loans and payday loans compare. They sound similar, but couldn’t be more different in terms of how they work. Before you decide on one or the other, read our payday loan vs. personal loan comparison below for more details on what you can expect. When you’re ready to move forward, Public Service Credit Union in Romulus and Detroit can help you determine your next steps!
What Are Payday Loans?
Payday loans are short-term loans that provide quick cash until your next paycheck. That being said, payday loan amounts are small but tend to come with high fees. This is why payday loans aren’t great choices for major emergency expenses. How do you apply for a payday loan? Here’s a quick overview of the steps involved:
- For starters, you’ll be asked about your employment and income.
- You’ll need to grant the lender access to your checking account so the money can be deducted when it’s time to repay, or you can give them a post-dated check that covers the amount you borrowed, as well as a finance fee.
- Usually, lenders don’t check a borrower’s credit score when they apply for a payday loan since it’s such a short-term loan.
Payday loans might feel convenient when you need fast cash, but the associated fees make them incredibly risky. Most people who qualify for payday loans fall into a cycle of debt, where you’re short on cash because a significant portion of your paycheck had to go toward repaying a payday loan. Personal loans are often available to people in need of cash and are much less financially risky.
What Are Personal Loans?
When it comes to the application and borrowing processes, personal loans can be more involved than payday loans. However, personal loans allow you to borrow more money and repay it over a fixed period of time with a fixed interest rate. You shop for a loan with agreeable terms and rates, apply, agree to a credit check, and receive an approval or denial. If you need money to cover a major expense, such as emergency car repair in Michigan, a personal loan is the way to go, especially if you were considering a payday loan.
Another factor that separates payday and personal loans is the impact your credit score can have on your ability to take out a personal loan. With a payday loan, your credit score carries no weight; it’s the opposite with a personal loan. Be sure to check your credit score before you start your search for a personal loan. The minimum credit requirements for a personal loan differ from lender to lender, so even if you have less-than-perfect credit, you may be able to get approved for the funds you need.
You may think you have bad credit and wouldn’t qualify for a personal loan, but the advantages of a personal loan over a payday loan make it worth your time to at least apply.
Why Choose a Credit Union for Your Personal Loan?
If your credit needs work, another option to consider is borrowing from a credit union. Credit unions are known for having more workable lending requirements than your average bank or creditor, especially if you’re working on building your credit. It doesn’t end there; you can do even more with a credit union, such as open a checking account online, receive overdraft protection, and much more.
Shop for a Personal Loan Public Service Credit Union!
Do you have additional questions about payday loans vs. personal loans, and what makes personal loans the smarter option? Contact us at Public Service Credit Union to learn more about your borrowing options. We can also answer any questions you may have about credit unions, such as, “How do credit unions work?”