Over half of all Americans have taken out a loan in their lifetimes. Two of the most prevalent loans in the U.S. are payday loans and personal loans.

So what are the differences between payday loans vs. personal loans? What should you know about each before you borrow any money?

That’s what we’re here to look at today. Read on to find out more about the differences and similarities between payday and personal loans.

What Is a Payday Loan?

Payday loans are short-term loans, otherwise known as check loans or cash advances. They’re known for having a small maximum amount but incur big fees.

The idea behind payday loans is that you pay them off in a short period of time. A lot of loans are due in about 30 days, which is often shorter than the time you have until you get your next paycheck.

Getting a payday loan is relatively simple, as you don’t need collateral or fancy identification. It is, however, meant for those with low credit or people who can’t qualify for other, more secure loans.

What Are Personal Loans?

If someone needs money for medical bills, home repairs, vacations, or other expensive ventures, they’ll probably look at personal loans. Banks, credit unions, and online lenders offer personal loans.

Most personal loans don’t require collateral. Those that do typically have lower interest rates.

Good credit usually guarantees you a personal loan. This is partly why some choose to take out personal loans instead of accruing debt on their credit card. Interest on these loans tends to be lower than many credit cards.

The amount of money attached to personal loans is higher, in the $1,000 to $50,000 range. The timeline for paying it all off is also longer, typically spanning a few years.

Payday Loans vs. Personal Loans: Differences and Similarities

The biggest difference between payday loans vs. personal loans is the time you get to pay everything off.

As we mentioned earlier, payday loans are extremely short-term since they’re due in about a month. Personal loans are structured to take several years to pay off due to their lower interest rates.

The amount you can borrow is another big differentiator. Payday loans have a hard cap before the amount reaches $1,000. Personal loans, on the other hand, can get to the tens or even hundreds of thousands range.

As such, accessing payday loans is much easier than personal loans. They don’t have stringent credit score requirements, but the interest rates do run higher.

A key difference between the two that isn’t mentioned as much is how personal loans actually benefit the lender if they pay on time. If you make your scheduled personal loan payments, your credit score improves.

If you aren’t sure whether these two types are right for you, cash lending services are available. Click on the link to find out whether you want to explore alternative borrowing options.

Payday and Personal Loan Guide

Understanding the differences between payday loans vs. personal loans is crucial depending on your lending plans and credit score. Use this guide to help you understand which one works better for you.

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