When Should I use a Payday Loan vs. a Bank Loan?
If you need extra cash to cover expenses, youre probably trying to figure out the best way to borrow money. There are several options to consider, including borrowing money from friends or family, getting a cash advance with your credit card, taking out a traditional bank loan, and applying for payday loan. This article will cover the last two options, bank loans and payday loans, and compare the requirements and advantages of each. After reading more, perhaps youll have a better idea of which is the right choice for you.
There are several important factors to consider when deciding which type of loan you need. Do you need a large amount? What is your credit history? When will you be able to pay back the loan? Lets look at a few key points that can help you decide if you if you should apply for a bank loan or a payday loan:
When do you need the money?
Payday loans tend to be for smaller amounts, usually a few hundred dollars up to around a thousand dollars. The amount you can borrow certainly wont exceed the amount of your next paycheck, because this is the money that the payday lender is counting on for repayment. If you have an unexpected car repair and dont have cash on hand to cover the mechanics bill, a payday loan could cover the costs until your next paycheck comes in. If you need a new car, however, youll have to apply for a bank loan.
How much do you need to borrow?
Payday loans tend to be for smaller amounts, usually a few hundred dollars up to around a thousand dollars. The amount you can borrow certainly wont exceed the amount of your next paycheck, because this is the money that the payday lender is counting on for repayment. If you have an unexpected car repair and dont have cash on hand to cover the mechanics bill, a payday loan could cover the costs until your next paycheck comes in. If you need a new car, however, youll have to apply for a bank loan.
When do you need the money?
Payday loans tend to be for smaller amounts, usually a few hundred dollars up to around a thousand dollars. The amount you can borrow certainly wont exceed the amount of your next paycheck, because this is the money that the payday lender is counting on for repayment. If you have an unexpected car repair and dont have cash on hand to cover the mechanics bill, a payday loan could cover the costs until your next paycheck comes in. If you need a new car, however, youll have to apply for a bank loan.
When are you able to repay the loan?
If you can get approved for a bank loan, youll typically have years to repay the loan and have the option of making very low monthly payments. This is convenient because you know you have time to repay your debt. With a payday loan, you usually have a couple of weeks or at most a month to repay the full amount of the loan, plus the interest charged. You have to keep in mind that a large part of your next paycheck will go to pay back your loan, so be prepared to cover your normal monthly expenses and settle your debt in a tight timeframe.
Finally, a note about interest rates. . .
Remember that a payday loan is a SHORT-TERM credit option. Payday lenders charge high interest rates for the convenience of obtaining a quick and simple loan, so these types of loans should be used for emergency expenses only. Rolling over a payday loan can be costly, so plan on repaying it in full with your next paycheck.
After answering these questions, you should have a better idea of which type of loan best fits your needs. Consider all your options carefully before deciding if a bank loan or a payday loan is right for your financial situation.
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