Payday Loans vs. Personal Loans

Are you looking to take our personal or payday loans in the UK? Before you do, it is important that you have an informed understanding of what the difference between the two is. With so many terms being thrown around such as secured, guarantor, payday and personal loans, how do you know where to start? We have broken down the difference between the payday and personal loans, so you are able to borrow money in the UK with ease, a through understanding, and without any added pressure.

Payday Loans

A payday loan is essential a type of short term loan. Most payday loans that you can access will be a small amount of money, usually no more than £1500, although some lenders do differ. Payday loans can be borrowed over a short period of time, usually due within 30 days, before the borrower gets paid and repays the amount. Some interest is usually added, depending on the lender of choice.

Personal Loans

Personal loans can either be provided by a bank, a credit union or an online direct lender. Personal loans are usually an unsecured form of lending, meaning that you will not have to put up any assets as a form of collateral. The benefit here is that you will not run the risk of having any value items you own being repossessed and they usually have higher rates of interest than those loans that are secured.

Payday Loans vs Personal Loans: The Difference

There are some defining differences between payday loans and personal loans. The main difference between the pair is the basic terms applied when you sign an approved loan agreement. A payday loan is a very short loan, as the name suggests and is usually repayable by the next payday. Personal loans can be short or long term forms of lending and the maximum length of time this is usually repayable by is 2 years.

Additionally, personal loans will usually have lower interest rates than payday loans do. This is helpful in some ways as you do not want to end up paying more money back if you have taken a loan out due to an emergency. Payday loans are usually much easier to access than personal loans too. Personal loans can take a few days to process, especially if you get one from the bank, whereas payday loans can be approved within a matter of minutes. Additionally, personal loans show up on a credit report, were someone to carry out a credit check on you. Payday loans will not.

Are There Similarities?

Although there are some major differences between the two, there are some similarities. These will usually both be forms of unsecured loans, so no collateral is necessary when you take one out.  If you are given the options between a payday loan or personal loan, persona loans are usually the less expensive options, comparatively. Although you may pay back less ultimately, the fact that personal loans have longer terms mean that you will pay back less interest, even if it is a larger sum of money overall.