Differences between personal loan and payday loan – which is the better choice?

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February 27, 2016

Differences between personal loan and payday loan – which is the better choice?

Loans

Both personal loans and payday loans are short term loans, and serve the same purpose in assisting with your current financial challenges. However, it is important to know whether personal loan or payday loan would serve your situation better as they may have different policies.

In general, borrowers take up personal loan or payday loan when they experienced emergency needs such as medical bills, electrical bills, credit card bills, school fees, renovation works etc. More specifically for payday loan, borrowers typically run into some unexpected expenses before their next pay day and needed the extra cash to get through until their next month salary is credited into their account. Below, we discuss when the borrower should consider taking personal or payday loan.

  • Collaterals

When applying for personal loans, no form of collaterals from the borrower are needed. Hence, personal loan in general can be referred to as unsecured loans as the licensed moneylender does not have anything to hold from your personal belongings. On the other hand, payday loan require the borrower to leave a post-dated cheque with the licensed moneylender. The amount include the amount borrowed plus the financing fees. Once your pay day has arrives, the loan provider will deposit the cheque into company’s bank account. While personal loan may be attractive as no collateral is needed, a pay day loan is suitable for someone who needs reminder to pay loan on time.

  • Job

A good basis in choosing between personal or payday loan is your job. If you are a business owner or do not have a permanent full time job, personal loan is a better choice for you as you need not have to provide any collateral to the loan provider. However, if you have a permanent full time job, applying for pay day loan is a good solution as you can present a post-dated cheque as a collateral and not getting your credit rating check by the loan provider.

  • Credit Rating

As personal loans are short term unsecured loans, loan providers will typically check your credit rating to assess the chances of bad debts. Once they look at your credit scores, they will be well-positioned to analyse if you are capable of repaying your loan in a timely manner. On a contrary, if you apply for pay day loan, the loan provider will typically not check your credit scores as the post-dated cheque you presented to them serve as a form of payment already. Therefore, borrowers who want to save the hassle of having their credit ratings being checked, payday loan would be a better choice.

All in all, it depends on your current financial situation in determining whether a personal loan or payday loan is a better choice. Nevertheless, when borrowing loan from any financial institutions, it is important to manage the payment properly as any mismanagement can lead to paying more financial charges and getting a bad credit rating which will decrease your chances of getting your loan approved the next time. If you need any financial advices, you can contact our friendly loan consultants at +65 6684 4129 or email us at info@swiftcredit.sg.

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