How Dissimilar Are Short-Term And Payday Loans?
By Space Coast Daily // September 7, 2022
A short-term loan is an umbrella term for funds borrowed for 12 months or less. Technically, payday loan belongs to the short-term loan category. It is a loan kind that is borrowed for not more than one month or repaid when your employer pays your salary or a day when you are financially able.
Financial product – Payday loans
A payday loan is also popular as bad credit or same-day loan. Loan Pig is a go-to company for same day payday loans. You just apply for a loan online and the creditor checks your affordability. On the same day, your designated bank account receives a deposit of the specified amount in the loan application.
Payday loans are extremely short-term loans borrowed to handle emergency expenses like medical situations, car breaking, etc. They are helpful to people who need quick cash but are costly as they carry a high-interest rate. If you default then a payday loan can increase financial difficulty. Consider the risks mentioned below.
■ Not the most appropriate loan but taken under emergency financial situations.
■ Needs to be normally repaid within 30 days.
■ Remember more financial problems can jeopardize the repayments.
■ Repayments will be costly because of high-interest rates.
Financial product – Short-term loan
Short-term loans differ in duration. It is taken for a period of 2 to 12 months. These too carry high-interest rates and the repayment can be costly depending on the duration you chose.
The Annual Percentage Rate of interest will seem less severe if the loan duration is for a long period. Both types of loans are designed for bad credit scores, so the chances to get a better interest deal are off the table.
The difference in the application process
A short-term loan application is not different than a payday loan because both financial products need the same details.
■ Check credit report
■ Check Eligibility
■ Determine how much loan amount you need and for how long
■ Shop around and compare interest rates
■ Thoroughly read the finely printed terms & conditions
■ Understand repayment schedule and your affordability status
■ If comfortable apply
Even if you need quick funds to resolve an emergency financial situation, be wise to research loan options and choose a suitable one.
Are payday loans more expensive than short-term loans?
Payday loans are for not more than a month, so they will be a little less costly. There is no interest accumulation but the amount to be repaid will depend on the listed APR. Both kinds of loans have the same interest rates and will be priced similarly.
The key difference is the chosen time to repay the debt. For example, borrowing £400 for 6 months is always more costly than borrowing for 3 months.
Repayment depends on the amount and duration chosen. Usually, short-term loans have long repayment schedule than payday loans. Payday loan has to be repaid in a lump sum on a fixed date but usually after a monthly paycheck. Short-term loan repayment is spread across the borrowed duration.
Which is suitable – How to identify it?
If you need a small amount and are certain to pay it off with your next paycheck then a payday loan is a feasible option. If you feel that you need a little more time to repay like a couple of months [at the least] then choose a short-term loan.