Personal Loan vs Payday Loan

Sometimes, certain things happen that catch us off guard and cause us to worry about our finances. It could be an emergency expenses that require urgent attention or an important purchase you need to make, yet your budget is not enough for it. You check your bank account, and it is can barely support that unexpected expense or massive credit card bill due in a few days. Worst case scenario, payday is still weeks from now, so the possibility of having to search for someone who can lend you money is making you stress out even more. Some people consider immediately to take out a payday loan from a licensed moneylender in Singapore during moments like these. But is it really the most practical way to go around your money issue? With massive fees and interest rates that come with this loan, you may only find yourself in a tougher situation by choosing this route.

A better option to consider when you are experiencing problems with your finances is by taking out a personal loan Singapore moneylending firms offer. Since the interest rates are not unreasonably high, along with an option to pay the loan off longer than two weeks, you can breathe easy knowing that you should be able to manage your money while settling the full amount of your loan at the same time. It is only a matter of choosing the best money lender Singapore citizens can count on in terms of the competitive interest rates and reasonable payment terms offered by the lender.

Here, we discuss what the different types of loans are available for you, including the benefits and limitations of each. This should help you decide whether it is the right move to make when you find yourself in a difficult financial situation.

Payday Loan Facts

A type of a short term and unsecured loan, a payday loan enables you to get by with your finances until you receive your paycheck in a few weeks’ time. Thus, it helps tide you over to the coming payday, particularly when you have absolutely nothing to take out from your bank account. Getting this loan is also easy and quick since there are no credit checks done by the money lender. As long as you have a valid proof of your sources of income, you may qualify for the loan. This is a requirement that money lenders look for to give them an assurance of having the loan paid back by the borrower.

But then, a payday loan is just a small amount of money that you can borrow. It is not at all anywhere larger than your paycheck. For individuals who require a larger sum for an important expense to be made, a payday loan would never suffice at all. Considering the massive fees of this short-term loan, you may only find it more challenging to use the amount for your urgent needs.

As for the interest rates of a payday loan, you will be surprised to discover how high these may be. Expect to be charged a maximum of 24 percent interest rate on the principal amount for a short span of 2 weeks. On the other hand, credit card companies in Singapore set an annual interest rate of 2 percent per month of 25 percent per year. If you do your Maths, this means a payday loan comes with 48 percent interest rate – about 25 times more expensive that your credit card debt. So, it can be bad news for borrowers who take out a certain amount for a payday loan if they only make about $1,000 a month.

Bottom line – the process of applying for a payday loan is quick and simple. There are no checks made on your credit history, and you only need to show the moneylender a proof of your income. Unfortunately, the interest rates are amazingly high, and if you fail to pay off your loan, you run the risk of causing damages to your credit score. Your inability to settle the loan during the deadline is a big problem since the interest rates just keep getting higher and higher as the weeks and months go by.

Options to Consider

Good thing there are other solutions available for those facing a difficult crisis with their finances. Instead of a payday loan, you may look into taking out a personal loan, which is equally easy for customers to get. The application process should take one day, and the interest rates vary from 6 to 7 percent exclusive of some fees. This is why if fast cash is what you need, taking out a personal loan may help your get through your urgent expenses.

In case you have specific intentions for the money you borrow, there are particular loans that may help you. These include a mortgage loan, renovation loan, and a student loan. Generally, loans that are designed for a specific purpose come with a lower interest rate. So, you may have to worry less about the repayment schedule if you are aware that your loan has cheaper rates, as compared with a payday or even a personal loan. Banks and other lending institutions are aware of your purpose for borrowing the money,k so this minimizes the risks they face due to the information they have obtained from the borrower.

To save more money on your loan, make it a point to select the right loan type suitable for you. This is a way for you to also make it much easier to pay off the amount once the deadline comes. You can also eliminate the chances of putting your credit rating on the line since there is a higher possibility for you to settle your debts.

To compare payday loan and personal loan let us look into these figures below.

With a payday loan, you are eligible to a few hundred dollars if you are making under $20,000 a year. But then the payback schedule is within a few days or weeks. As for a personal loan, you may be guaranteed of taking out a few hundreds to as much as a few thousands of dollars for an income that is $20,000 or more annually. Payment must be made within weeks or a few months.

Primarily, personal loans cost cheaper as compared to payday loans when you are making over $30,000 per year. The interest rate per year is at 7 percent maximum, and the approval process may take a day or a few days. So, to get money quickly, a personal loan may be a viable option. Managing the loan is also stress-free because of the length of time allotted for you to repay the amount. You may even divide the payment into smaller sums of money – a great help for those who cannot afford to pay the loan in full, as with a payday loan. Your lender will even inform you about the remaining balance that is yet to be paid for your guidance.

Since a personal loan allows you to borrow thousands of dollars, the amount can take you a long way instead of the few hundreds that a payday loan offers. When dealing with emergencies that involve a larger sum of money, a personal loan will surely come in handy.

If you only require a few hundred dollars, and you are certain about being able to pay your loan off quickly, then a credit card may be good to consider. As with a payday loan, there is no such thing as a lengthy approval process. The annual interest rate is also at 25 percent – much cheaper than the 24 percent interest every couple of weeks for a payday loan.

Sure, a payday loan is easy to get because of the very fast application process. But then again, with the massive fees involved, paying it off without giving you so much stress is almost impossible to do. This is why you should study carefully what your options are instead of making an impulsive decision you may only regret. With a payday loan, you are eligible to a few hundred dollars if you are making under $20,000 a year. But then the payback schedule is within a few days or weeks. As for a personal loan, you may be guaranteed of taking out a few hundreds to as much as a few thousands of dollars for an income that is $20,000 or more annually. Payment must be made within weeks or a few months.