What is the difference between payday loans and small loans
We’ve probably all encountered unexpected emergencies at one point or another. When this happens, access to quick cash can provide the flexibility and freedom to sort out the smallest of financial issues without too many hassles.
However, when it comes to borrowing small-amount, quick cash, we’re often faced with the challenge of choosing between small loans. In this article you will learn how payday loans work and what differs them from the small loans.
Read on to find out!
What is a payday loan?
As its name suggests, a payday loan refers to a short-term loan intended to pay off overdue payments or make ends meet. Like other forms of small loans, the borrower is required to repay the amount in their next paycheck.
The maximum period given by these lenders is generally 14 days -31 days. Typically, this type of loan is often associated with high-interest rates and fees; it’s best used as an emergency supplement rather than as a primary means of borrowing cash. Here are some of the main advantages of payday loans:
- It guarantees you quick approval even with a bad credit score.
- The amount you can borrow is limited by your income, making it easier to pay loans back.
- Payday loans can be a great way to get quick access to emergency funds.
- The process of accessing the loan is easy, fast, and doesn’t require heavy scrutiny.
- A payday loan doesn’t affect your credit score as the money is directly transferred to your account, so there is no need to worry about anything.
- payday loans are short-term, which means they can be repaid quickly when you get your next check
- Unlike traditional loans that take weeks to approve, payday loans only require lenders to review your financial situation, and you’re approved within 24 hours.
What is a small loan?
Small loans are comparatively smaller in amount when compared to traditional loans. Usually, the amount that you’re borrowing falls somewhere between £100-£1000. However, some lenders also provide loans within a range of £500-£2500. Here are the different types of small loans?
Unsecured loans: This type of loan doesn’t require you to put up your property as collateral, which means that you’re not required to repay the loan in addition to the value of the asset.
Guarantor loans: These types of loans rely on a guarantor. As such, you’re required to have a guarantor who’s willing to assume responsibility for repaying the amount in case you default on payments.
Credit cards: Another type of small loan is a credit card, which are line of credit that allows you to spend with the assurance that you’re able to repay it at any time. However, with this type of loan, the chances are high that you’ll be faced with high-interest rates as well as annual fees and other charges.
Payday loans: If you didn’t know, Payday loan is one of the most popular types of small loans that you can get your hands on immediately.
What are their similarities?
It’s important to note that all types of small loans provide us with access to cash freedom almost instantly – within just a few hours in most cases.
All small loans come with no hidden costs or fees, which mean that you’ll be informed about the total amount to be repaid in the future upfront.
They can help you cover emergency costs or expenses that arise without any hassles – they’re especially helpful if your bank account is running low and need cash ASAP!
What are their differences?
While payday loans and small loans might appear similar on the surface, there are actually many differences between the various small loans available in the market today. These differences include:
Unlike short-term payday loans, some small loans come with much lower interest rates and fees – this is one of the major perks of other small loans and a huge factor in deciding which type of loan to go for!
Another significant difference between payday loan and other small loans is in their repayment period. While payday loans can be repaid within a month, you’ll typically have anywhere from 6 months to 5 years (12 months being the norm) to repay a guarantor loan for example.