Payday vs Short Term Loans

Should you go for a short term bank loan or payday loan? Most people go for short term loans because they are easily accessible, fast and convenient. Payday loans are more popular than bank loans, even though they offer a similarly quick and convenient loan option for borrowers. While both types of loans offer quick financial relief, which is the more convenient loan option?

Let’s look into the two types of loans.

Varying lengths of repayment

Payday loans attract a very short repayment window while short term loans usually offer a more convenient term. Payday loans will generally range between a month and three, depending on the specific lender’s terms. Short term loans will offer a period ranging from a number of months to a couple of years, depending on the amount borrowed.

Method of payment

Payday loans usually have a payment deadline, after which a borrower is considered to have defaulted. The amount is paid to the borrower’s discretion, which can be daily, weekly or monthly plan. You can even pay all at once. Unlike short term loans, the lender does not have any access to your funds which means they cannot automatically make deductions. Short term loan lenders will work with a structured model of payment, which can be monthly or annually. Most lenders will deduct the repayments directly from your bank accounts.

Eligibility requirements

Virtually anybody will qualify for a payday loan since the eligibility requirements are pretty loose. In fact, you would almost have trouble not qualifying for this type of loan. As long as you have a valid national identity card or driver’s license and a bank account for deposits, you will be able to access payday loans. The strictest lenders will require some proof of income before awarding the loan. A short term loan could be tougher to get. Aside from the national ID and proof of income, you also need employer validation, a lot more personal information, a threshold credit score and some collateral for larger loans. Even if you have all these, lenders may still consider you as an unsatisfactory candidate for a short term loan.

Credit score requirements

Payday loan eligibility requirements are more relaxed than those of short term loans. Your credit score will not be checked during the application process, which means that a bad score will not affect your ability to get a loan or the amount you can receive. Your payment history with a specific lender may be a bigger factor in increasing your eligibility for higher amounts. Short term loans are very strict when it comes to credit scores. You need to meet the minimal credit score rating to qualify for a loan. Many lenders will increase your loan value if you have great credit history.

Final word

Payday loans are less strict than short term loans, which makes them better options for people with a bad credit score. Short term loans are more flexible in repayment and have better terms than payday loans. Choosing between the two comes down to your use for the specific loan, the amount you need and your eligibility for either type of loan.

How to Maintain a Good Credit Score

The benefits of a good credit score are often under looked. Most people ignore this important number until they are applying for a loan. But did you know that a good credit score can impact your ability to get better terms or access to a mortgage, employment, personal loan, apartment and insurance coverage? Different types of lenders will determine your financial risk and ability to pay back any debt before making their decision. With the number of important financial features tied to it, you will need to maintain a good credit score to improve your financial stability.

Tips to Help Improve Your Credit Score

Paying your bills on time

Most people with a bad credit score and history will likely have unpaid payments to blame. Late bills, credit card and loan repayments will usually attract harsh penalties. By failing to pay on time, your lender may involve relevant credit bureaus. The end result is a lower score, which will damage your eligibility for loans. Every missed payment will reduce your credit score.

Make regular checks

You need to make regular checks on your credit report to assess your financial condition. Knowing exactly where you stand could help reduce the chance of inaccurate or incomplete information affecting your score. By making regular checks, you will be able to dispute any misrepresentation and ensure your credit score remains high.

Reduce your debt to income ratio

You should maintain low balances to improve your income to debt ratio. By addressing your debt before applying for a loan, you will be more likely to qualify for great loan deals.

If you cannot clear the debt in the short term, you may consider taking up a debt management plan to help you overcome it. You could even consider increasing your income to help reduce your debt quickly. This can be achieved by finding additional sources of income such as a new business venture, monetizing your hobby or finding additional part-time employment.

Manage your credit applications

Having too many credit cards or applying for an excessive number of loans at the same time will affect your level of debt. You may be unable to meet the demands of repayment if you have too many loans taken out at once. This will have a massive impact on your credit history and score. Even if you make regular monthly payments, you will be more likely to mix up your repayments and affect your score. Taking too many loans could cause you to be stuck in a cycle of debt and repayment, where you take up new debt to meet the financial shortfall created by your current debt.

Budget for all spending

You can maintain a good credit score if you account for all your expenditure. By keeping your spending low and within your level of income, you will not need to take up debt and risk affecting your score. You will also be more likely to save and improve your financial state by maintaining a budget.