It happens to everybody at one time or another. They get just a little short on their monthly bills or they just don’t quite have enough cash to make it until the next payday. Many struggle with what they should do in these situations; should they take out a long term loan from the bank or should they consider a short term payday loan. The answer lies with a few personal situations that will determine which option is best for them.
Qualifying for a Bank Loan vs. Payday Loan
Bad credit seems to be a fact of life for many consumers. This prevents them from getting a traditional bank loan to help them through rough financial times. To qualify for a traditional bank loan, you typically need a high credit score as well as a certain debt to income ratio on top of verifiable income. All of these things together prevent many people from being able to qualify for a bank loan.
Qualifying for a payday loan is much easier. Most companies do not even run a credit check; they simply verify the applicant’s income and bank accounts. This is often referred to as a no credit check loan since they simply require a job to qualify for the loan. To apply for a payday loan, the applicant often can fill out a simple application online, wait a couple hours for the verification process and then have their cash deposited into their bank account the following business day.
Traditional bank loans require that borrowers repay the loan and the interest over a period of time, often 12-18 months. This does bring down the monthly payment that is required although when only a couple hundred dollars are needed, the longer repayment plan can be harder financially than paying off the loan in one lump sum. The average payment for a small, personal loan from a bank is around $100 per month.
The payday loan repayment method is different from traditional banks. The payday loan is paid off in one lump sum through EFT on an agreed upon date, from the bank account that was used for the initial loan. With this plan, the borrower simply pays the loan off in one shot. There is no worrying about making a monthly payment, it is just done. The way the plan works is that the Annual Percentage Rate is much higher than banks, but since it is paid off in one payment, it is usually only about $60, much less than the total interest paid for any bank loan.
For those consumers who need just a small boost until their next payday, a short term payday loan could be the perfect answer. It is a loan that is easy to qualify for and is paid off right away. There is no more worrying about adding a new expense to the budget because it only requires one payment. If you just need a boost until your next payday, look into your options for a payday loan to see how it can help you.
Guest post contributed by Ted Kingman on behalf of SaveMyBacon.co.nz – Ted is an freelance personal finance writer. His articles mainly appear on personal finance blogs. To find out more about SaveMyBacon cash loans, visit their website.