If you are trying to decide between personal loans and short term loans for bad credit, you may be unsure of the differences between them. There are actually many differences and it is good to know what they are so that you can decide which is the best. Whether short term loans for bad credit or personal loans are best for you will depend on your personal circumstances but you need to know what the main differences are so that you can choose which will suit you the best.
Representative Example: £400 borrowed for 90 days. Total amount repayable is £561.92 in 3 monthly instalments of £187.31. Interest charged is £161.92, interest rate 161.9% (variable). Representative 305.9% APR. We are a broker not a lender. We don't charge fees. We don't sell your personal information.
Personal loans tend to be made available from mainstream lenders. These are the banks and building societies that we see on our high street as well as some online lenders. Usually they are household names or at least very well-known. They tend to at least offer savings accounts but usually all sorts of financial products. Payday loans tend to come from specialist lenders who only lend money in this way without offering other products. They often only operate online but there are some that have high street branches as well.
The repayment schedule for a personal loan tends to be monthly instalments over a period of time, usually a year or more. A payday loan will often have just one repayment, which is made on the next payday. This can mean that you need to find a larger sum of money all in one go, rather than being able to make more manageable payments over a longer time. There are some payday loans which do have a longer repayment schedule though.
A personal loan tends to lend a thousand pounds or more and so you can borrow large amounts of money for house refurbishment, expensive holidays, cars and things like this. A payday loan is very much smaller, usually lending hundreds of pounds and a thousand pounds would be the maximum that you could borrow.
When you take out a personal loan, the lender will do a credit check to see if they feel that you are capable of repaying. If you have a very poor credit rating, they will tend not to lend you anything. If you have one that isn’t too good, they may lend to you, but at a higher interest rate and if you have a poor credit rating, they will not lend to you at all. A payday lenders will also carry out a credit check but due to the smaller amount this may be less important to them, which means that even if you have a poor credit rating, you will still be able to apply for the loan.
A personal loan can take some time to arrange. The bank will check all sorts of details and it could take a week or more to get the money that you need. Whereas, with a payday loan it can be possible to get the money within a few hours and most lenders would provide the money within a few days at the latest. Some will even have staff working overnight to ensure you get the money that you need really quickly.
The costs varies a lot between loans. If you look at the equivalent APR rate of the two different loans then you will usually find that the payday loan is dearer. However comparing on this basis can be confusing. It can be much better to calculate how much money the loan will cost you and then you can compare more easily.
As you will see, the two types of loans are very different. You will find that if you have a bad credit rating, need money quickly, want a fairly small amount, want to repay quickly and do not mind going with a lender that is not a bank or building society then a payday loan could be better for you. However, if you want to use a bank or building society, want to borrow a large amount and pay back over a longer period, have a good credit record and do not mind waiting a while before you get the money, then a person loan could be more suitable for you.