At some point in their lives, most people will need to borrow money. And while some have a friend or family member who is willing and able to lend the necessary sum, this isn't always the case. Furthermore, racking up credit card debt or using the equity in your home by putting another mortgage on the house are not always viable options.
In these cases, many people turn to Personal Loans and/or Payday Loans. We’ve put these two types of loans in the same sentence. However, it’s important to note their crucial differences — especially before signing your name to anything.
In the following article, we'll go over what Personal Loans and Payday Loans are. We’ll also touch on the pros and cons of each and offer recommendations for those currently facing situations in which they need to borrow money.
Personal Loans are quite versatile and can be used for a variety of purposes — from debt consolidation and paying medical bills, to repaying friends or family or taking care of tax debt.
A Personal Loan may be procured from a credit union, bank, or online lender. No collateral is necessary for Personal Loans. However, there will be strict terms, including how much your monthly payment will be, what interest rate you will pay, and the period of time you’ll have to repay what you've been loaned.
In some cases, origination fees may apply. These are generally between 1% and 8% of the total amount you're taking out as your loan. As an example, if you borrow $10,000 from a bank as a personal loan, the amount charged for your origination fees will likely be between $100 and $800.
Personal Loans have pros and cons. Let's examine both:
Payday Loans get their name from the fact that lenders generally intend borrowers to repay these loans whenever they get their next paycheck. Therefore, it's no surprise that Payday Loans generally have short payback periods.
Another characteristic of Payday Loans is their typically high interest rates. These loans are usually requested when people are in a pinch, and lenders know it. As a result, they'll hike up the interest rates and bank on borrowers not focusing on that fact. Borrowers usually need the money right away and don't have many options.
Generally speaking, Payday Loans can either be procured at brick-and-mortar locations or online. One advantage that many borrowers like is that credit checks are not a part of the "application" process. Therefore, if you don't have good credit and need money right away, it's a viable option.
Now let’s take a look at the pros and cons of Payday Loans:
Requiring an additional sum of money on relatively short notice is not an uncommon predicament to find yourself in. You shouldn't necessarily feel out of control of your finances if this situation occurs with you. Emergencies happen.
Still, it's important to go about finding the right type of loan for your situation. Payday Loans are commonly known as a predatory type of loan. They target people who are likely to get into a cycle of debt that they can never get out of, and you don't want that to be you.
A better option is to apply for a Personal Loan. These are sound choices for individuals, couples, and families who simply need a financial leg-up but are also able to responsibly take care of payments — even improving their credit in the process. Applications can be done in person at a local branch or online.
If you are interested in taking out a Personal Loan, talk to Allegiance Credit Union about your options today.