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.
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.
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.