Personal Loans vs Payday Loans
When financial emergencies and crises hit there’s no substitute for a rapid influx of cash for dealing with them. Even emergencies that don’t seem financial in nature on the surface usually require money at least tangentially to deal with.
But where is that money supposed to come from? Studies show that most Americans don’t have the money to staunch a $400 emergency without going into debt. The sad reality is that most of us don’t make enough month to month to build a strong savings account or emergency fund to float them through periods of financial hardship.
Luckily, there is an option out there that you can turn to: personal, or payday loans. Either is a strong financial tool that can get you the cash you need, but there are key differences between the two. Today we’re going to dive in and look at what you need to know about their differences.
Before we get started, it’s important to make sure we’re all on the same page and know what we’re talking about. Personal loans is a broad umbrella term for any kind of loan that doesn’t have a stated purpose like a mortgage, car payment, or business. They can be obtained from a bank, dedicated lending institution, or even an individual. The interest rate on them will vary broadly, but is generally high.
Payday loans are loans that can be obtained from a dedicated payday loan company, usually in person at a store location, and are extremely short term. This is because they’re secured by your next paycheck. Their primary advantages are speed and convenience, and can net you up to $500 in the state of Alabama. More can be learned about payday loans online at our dedicated FAQ page.
Convenience and Speed
The first and most important contrast between personal and payday loans is the speed of each category of loan. While personal loans often require a small mountain of paperwork and references, a payday loan can get you in and out in as little as a half hour. While payday loans online can’t be obtained, the process can be started online, and to get your title pawn you’ll only need to bring a few key items with you:
- Most Recent Pay Stub
- Driver’s License or State Issued I.D.
- Social Security Card
- 30 Day Bank Statement From Your Checking Account
- A Blank Check from an Active Checking Account in Your Name
These items are simply to obtain, and far easier to work through than a personal loan from a bank. And it simply cannot be overstated how important speed is as a factor when dealing with financial hardships and emergencies. Just a few hours can mean the difference between accruing penalties on your bills, or even being unable to afford medical care in the most dire circumstances.
Not Guilting Your Family
While personal loans can be obtained from a lending institution, another common way of obtaining a personal loan is through a personal friend or family member. After all, often they won’t charge you interest like a normal institution and can be obtained quickly. Unfortunately they can come with a major downside: they can be extremely uncomfortable on a personal level.
As a culture, we Americans tend toward pride in self sufficiency, and so not only do we not like to ask for help, we can feel especially guilty when asking it of those closest to us. We don’t want to burden them, and we especially don’t want to feel the accompanying guilt or shame. And even worse, loans that stretch for too long can breed resentment and bitterness, sullying relationships that were otherwise positive.
Payday loans offer a guilt free way of getting that same money with the same speed. With a payday loan there’s no begging family members for charity, no need to feel guilty that you need help.
As a side note, if you do decide to ask a personal friend or family member for a loan, there are a few ways to limit the strain it will put on your relationship. Make sure both parties are clear on the amount of the loan, how long it will take to pay it back, what installments it should be paid back in, and what if any interest you should pay back as well. Unclear communication is the major factor in bitterness and resentment seeping into your relationship when loans are at play, so make sure both parties are clear on all the above points before you begin.
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.